Business Strategy – preparing for a recession

As inflation remains high and growth slows, many economists are predicting a recession. For SMEs, preparation is key. This includes stress-testing your cash flow, reviewing your cost base, and ensuring your financing is secure.

It is also a time to focus on your core customers and ensure your value proposition remains strong. Businesses that are proactive in managing their finances and operations are much better placed to weather an economic storm.

Cash is king

In any economic downturn, liquidity is the most critical factor for survival. Review your cash flow forecasts and run stress tests to see how your business would cope with a 10% or 20% drop in revenue. Tighten your credit control procedures to ensure you are paid on time, and consider renegotiating payment terms with your own suppliers to keep cash in the business for longer.

Review your cost base

Now is the time to review every line of expenditure. Identify discretionary spending that can be paused or eliminated. Are there subscriptions or services you no longer use? Can you negotiate better rates for utilities or insurance? However, be careful not to cut costs that are essential for generating revenue or maintaining customer service, as this can create a downward spiral.

Protect your core revenue

During a recession, acquiring new customers becomes more difficult and expensive. Your focus should shift to retaining your existing customer base. Communicate with them regularly, ensure your customer service is exceptional, and consider whether you can adapt your products or services to better meet their changing needs in a tougher economic environment.