Fears of recession have dominated the news for several months and much time has been spent on what a recession could mean for businesses and individuals. A recession is a decline in economic activity for two or more consecutive quarters. Recessions are inevitable and beyond our control, but the only thing you can control is your reaction. Here are some steps and measures to take to reduce the impact of a recession.
Increasing your cash flow is critical to protecting your business during an economic downturn. Lack of cash flow protection is one of the main reasons small businesses close during epidemics and previous recessions. It's safe to say that money is king, but building isn't something you can do overnight. Therefore, consult with your financial advisor to carefully review and reduce your expenses to create a stable foundation.
The same goes for private savings. You should bring in more than you spend on monthly expenses. Now is the time to figure out what your income is spent on and review taxes, automatic deductions, health insurance, life insurance and 401(k).
Inventory is one of the largest expense items for any business. Therefore, analyze your inventory report and data to ensure that you are not producing more than you are selling. Regularly reducing your inventory reduces storage costs because you stop paying for products that gather dust. And if you're in the service business, do you pay a lot for overhead like software, insurance, and cleaning services? Get quotes from different vendors to get the most competitive prices.
As with personal spending, make a list of all your spending habits to maintain the lifestyle you and your family are used to. By understanding your spending habits in detail, you can find unnecessary expenses, cut them, and create a budget plan.
An economic downturn is not a good time to experiment with your products or services. It's time to double the middle finger. Your best customers will never forget what you do best. The time to experiment or grow is in a strong economy, not a recession.
The same goes for private savings. Now is not the time to buy a luxury cruise in the Bahamas. Time to save for a rainy day and save for an emergency. A good rule of thumb is to calculate your average basic expenses (rent, bills, groceries) and multiply the amount by three months. Increasing your savings can give you the boost you need to ease the stress of a financial crisis.
When money is tight, high-interest debt and credit card debt are the easiest ways to get into trouble. During a recession, most people make minimum payments, but will continue to make new ones. Being able to make extra payments on your debt saves you interest payments and improves your credit score.
Slack is your chance to get ahead of the game and acquire customers from your competitors. Analyze the competitor and take notes on useful business strategies. Do your competitors have a strong value proposition? Do they understand their audience better? Use this buffer to gather information and identify opportunities for improvement.
Lauren Garabedian Ruff, CPA, is the chief operating officer and business consultant at The Garabedian Group, Inc. in Fresno, California. He specializes in family business support, estate planning and taxation. Lauren has been practicing for ten years. To contact Lauren Garabedian Ruff, call (559) 472-7370 or visit www.thegarabediangroup.cpa.
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