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How to Prepare Your Business For an Economic Downturn

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The past couple of years have been among the most disruptive for businesses since the global financial crisis of 2008. Many businesses have never known a significant financial downturn, so have not been prepared for the risks and challenges that they face. While the world is not quite in a recession, there are signs that the economy is due to slow down and, in many places, retreat in the coming year. As such, preparing your firm and tightening your finances is a wise idea in the face of unprecedented challenges. Here’s what you need to know about preparing for a recession.


Without a doubt, the most important area of your business to focus on during a recession is your finances. Here, you’re going to want to think about how much cash to keep aside in liquid form so that you can turn to it to cover your basic expenses if your sales plummet. Meanwhile, you’re also going to want to have a way of charting your finances in more granular detail and in more frequent  waves. That way, you’ll derive a better understanding of whether your firm is experiencing declining profits – and why – before you are stuck without enough cash to pay the bills.


If finances are the most important part of your business to focus on, then the process of accounting is the most important for you to get exactly right. You may wish to engage with accounting technology to help you quickly visualize your finances – often in real-time – to help you plan for the coming weeks and months. You may also want to consider accrual versus cash accounting, the former measuring revenue at the point of sale, while the latter counts the cash that you receive for each sale. There are pros and cons to both approaches, so it’s worth reading up on which will work for you in challenging economic times.


Those with memories of 2008 will know that this was a period in which there were hundreds of thousands of redundancies. These took place at some of the largest firms in the world and in some of the most lucrative careers, as well as across smaller businesses and industries. If the downturn means that you simply have too little work for your current batch of staff to perform, you may be forced into the unenviable position of needing to let people go. If it’s a case of making redundancies or losing your entire business, the decision should be plain. Be prepared to make such decisions if you find you’re struggling to make ends meet.


Many firms have contingency plans, which are plans kept in a folder for when they might fall on hard times. Many of the firms that had already “war-gamed” these scenarios performed well during the pandemic period when they were better prepared to pivot, save money, adjust their business proposition, or reach new customers. With the pandemic behind us, there are still large headwinds for businesses in the modern day. Running through doses scenarios with your executive team, such as whether you should lay off personnel, reduce your overheads, or move to a lean model for a few months, will all help prepare you for moments in which your business may be in peril.


Firms that operate on their own, without enough experience and know-how on the team, are always the first to find themselves all at sea and struggling to find the answers to their problems. Meanwhile, those businesses that have a rich support system, from trustees, board members and founders all the way through to consultants, advisors and other business leaders, will have plenty of different people to get in touch with if they’re in need of advice and assistance. This emphasizes the importance of networking more generally. But in the case of a global economic downturn, you’ll also want to lean on the advice of others to help you navigate the choppier waters of business.

Supply Chains

Your firm might be perfectly positioned to ride out a recession. Many businesses are so indispensable that they’re able to keep trading and offering services throughout an economic downturn. What often catches these firms by surprise, though, is the fact that the companies they are partnered with sometimes fare less well. That means that all businesses concerned about tough times ahead should look at their clients and partnerships. Consider which can be relied upon and which may require you to search for a back-up in case they can no longer deliver for your firm.

Economic downturns can be grim for businesses, but these tips will help you run them out relatively unscathed.


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