How to Make your Business Prepared for Recession Pt 1
A recession can mean a lot of things for businesses in many ways. During the 2007 – 2009 “great recession” in the US, we saw many companies face huge losses, increased numbers of unemployment, and several companies being led to bankruptcy. Understanding why this happens will help you prepare your business for success in the case this happens again.
A decline in general economics is referred to as an economic recession. It is usually attached to drops in the stock market, a decline in real estate loans, and an increase in unemployment rates. Many things can factor into an economic recession, such as high interest rates, inflammation, reduced wages, and reduced consumer confidence. These factors can be detrimental to a business if they are not prepared.
Foreseeing any issues such as a recession and planning for that will allow your business to succeed during the times of crisis. Failure to do so would mean that if another recession hits, you would be scrambling, like many others, trying to figure it out enough to stay afloat. Below are some steps you can take to prepare your business for recession.
When a recession hits, companies generally pay their invoices and debts slower than normal. They also are diligent about asking for payment from customers and clients earlier and sooner than normal. Both of these things will start to affect your available cash.
If you have a cash reserve in place because you have prepared for the unknown, these payments will not seem as daunting. You will know what you have available and what you need to continue making in order to be successful in this rough time.
When building your cash reserve, set a goal of how many months you want your reserve to cover. Experts recommend 3 months as a minimum, although it can be beneficial to go with 6 months as well.
Invoicing and Payment
Remember that when a recession hits, it affects almost everyone. Clients and customers will also be affected and you may notice that they will delay in paying their bills to you. This will definitely affect the cash flow of your business. By managing your invoices effectively, you can prevent the stress that comes with seeing your cash flow fade away in front of your own eyes.
Checking a customer’s credit is a wise way to see where they sit with paying off other bills. If you are working with a client who has great credit, and they are known for paying their bills on time, you are less likely to find yourself trying to track them down asking for your payments.