Are you wondering how a recession might impact your business? The thoughts of rising costs and lower customer demand might be keeping you up at night. Effectively safeguarding your business during periods of economic decline can seem like a daunting task.
However, by taking a proactive approach to the accounting and tax of your business, you can set yourself up for success, regardless of the state of the economy. Here are 10 ways to keep your doors open during a recession.
#1: Diversify Your Banking
The recent closure of Silicon Valley Bank left countless business owners in a panic. From the inability to access funds used to pay operating expenses to uncertainty surrounding which bank might close next, all business owners should diversify their banking.
The FDIC only insures deposits up to $250,000. Even if you maintain funds under this threshold, it could be weeks before you get access to these amounts. By holding accounts at multiple banks, you reduce your risk of having a sharp cut-off to your funds and can continue operations with minimal disruptions if one of your banks does go under.
#2: Closely Monitor Cash Flow
Monitoring cash flow is essential during a recession. If you have no idea when you expect customers to pay, how can you time vendor and employee payments? Business owners should have transparency in upcoming transactions to ensure that they don’t overdraft and can draw on external funding sources when needed. For more cash flow management tips, check out our other blog post here.
#3: Focus on Internal Controls
Declining sales and lower cash inflows can place pressure on your team, especially if they are expected to reach certain benchmarks. This makes it important to pay close attention to internal controls to reduce your risk of fraud and asset misappropriation. Is your business still properly segregating duties? How about continuing to have effective oversight of all areas? For more tips and tricks to improve your internal controls, check out our blog post here.
#4: Set Attainable Goals
It’s important to set goals, even during recessions. Your goals should factor in the state of the economy. If you expect consumer demand to decrease, you shouldn’t set a goal to increase sales by 5%. Creating attainable goals helps your team stay on track. In addition, if you currently offer performance incentives, it’s important that you keep these items in place. Removing a bonus for meeting a certain sales threshold can reduce your team’s work output and lead to declining growth.
#5: Regularly Tax Plan
Tax planning is a fundamental component of staying afloat during recessions. After all, taxes directly reduce the money that goes back into your pocket each year. Consider tax planning with a professional on a quarterly basis. Having a professional review of your financial situation regularly opens the door to more tax savings opportunities. Our team at Craib Accounting can help you find ways to reduce your tax liability, minimizing surprises during tax time. Reach out today to set up a consultation.
#6: Create a Budget
Budgets are a key component of navigating your business during a recession. How can you expect to keep your doors open if you have no clue where your money is being spent? Maybe you find that you are paying for unused subscriptions each month or that one product line is outperforming the other. Whatever the case, a budget can help you safeguard your bottom-line number during recessionary periods.
#7: Improve Your Cross-Sell Strategy
If you can build a loyal customer base, you are more likely to see additional revenue from cross-selling. For example, if you sell windows, could you add a blind product line? Customers who purchase windows might want to have blinds installed as well, increasing the revenue you are able to generate. Take a look at your existing products and services to uncover where you can cross-sell. Not all customers will take advantage of add-ons, but the ones that do can help your business improve sales.
#8: Re-Evaluate Your Target Market
Marketing can make or break a business, especially with social media gaining popularity. Do you have a defined target market that your advertisements are geared towards? If not, it might be time to dive into who is buying your product. If you find that individuals over 50 are your primary customer base, it might be helpful to put ads in the newspaper or on the radio compared to the social media platforms that younger generations use. Honing in on your target market helps you pinpoint where your marketing budget should be deployed, minimizing your advertising costs.
#9: Improve Company Diversification
During a recession, businesses are competing with each other to make sales. If your business has no diversification, it can be difficult for consumers to see the value of purchasing your product or service. Despite the upfront cost, rebranding your business might help you differentiate yourself from competitors. This could include changing your packaging, logo, and business colors. Building a defined brand image can also help consumers identify your product when choosing between multiple options.
#10: Create New Products and Services
How can you expand your business? Even though expansion might seem unfeasible during a recession, offering more products and services can actually help your business remain stable. If consumer demand changes for one of your products, you have others that are still bringing in revenue. Businesses with just a few products or services have a higher risk of going under if consumer demand were to change. You might not want to start a brand new product line or service, but instead scale along the lines of your main revenue stream. For example, if you are a computer repair business, could you offer repairs of TVs and other smart devices?
Keeping your doors open during a recession relies on taking an innovative approach to running your business and knowing your numbers. At Craib Accounting, we can help with all things accounting and tax, giving your business a strong baseline to make decisions during uncertain times. Reach out today to set up a consultation.