You may have heard news about the looming recession in the States. And it’s a good thing. 

That we all know it’s coming. 

Unlike the impact of the more unexpected Covid-19, knowing there is a recession offers the benefit of time to prepare.

Lots of great advice, guidance and CFO expertise coming out in timely reports, compiled by departments of corporate America. 

Meanwhile, as a small business owner you’re left bracing at the knowledge of an impending recession, but no real tools to actually use. 

It’s like telling someone the tornado is coming while simultaneously slamming the storm shelter door in their face.

So if your accountant or CFO is not proactively telling you about all this stuff, let’s have a chat.

In this post, I decided to take the finance corporate lingo and translate it into bitesize advice that actually applies to your small business too! So let’s dive in!

1. Cash is king 

What this means: 

• Keep an eye on the cash in your business
• If you don’t have a cash model, this is the time to implement one
• How can you maximize the cash on hand? Look at any bad paying accounts, late paying accounts and cheques tied in Accounts Receivable and make changes
• Rolling forecast to replace a static budget. So as Dec 2022 rolls in, add in Dec 2023. This way you’re always looking 12 months ahead.

2. Don’t be afraid of cuts, but only cut the right things

What this means:

• Determine the right cuts with clear forecasts for each area of your business
• Is this the time to develop new products? Or is it time to look at where your spending will make a difference over time in terms of winning the market?  
• For example, you can cut down some of your marketing budget, but if you’re cutting all of it, you’ve lost all visibility in front of your clients 

3. Know your customer-related metrics

What this means:

• Consider all your customer related metrics

• Accounts Receivables should tell you how much money is tied up in the receivables ledger
• When resources are scarce, hang on to existing (or best paying) customers rather than invest in new ones
• Customer Acquisition Cost & Period will tell you how long it takes you to acquire a new customer and how much it costs 
• How can you create more value while still keeping your profit margins?

4. The opportunities in your supply chain

What this means:

• Map out your current suppliers 
• Take it a step further and look at where your suppliers get their supply
• Are there any opportunities to renegotiate existing contracts, or create new ones? 
• Recession makes customers choose the lowest cost over speed or quality. What value pricing can you offer?

5. Get strategic with inventory

What this means is :

• Assess your inventory to weather the slow demand or the supplier delays / outages. 
• Identify the minimum inventory you need so that you can accommodate customer swings
• Zero inventory strategy. Consider your inventory an asset. This means it can decrease in value, cost money to store or lose money if it goes to waste. Most importantly, it ties up cash. In order to release this cash you can look at how to get a zero (as close to zero as possible) inventory strategy.

6. Release your team from repetitive tasks to get more efficient

What this means:

• Payroll remains the biggest expense on a company’s P&L
• Upskilling current employees costs less than training new hires
• Automate any repetitive tasks or operations. Top 3 areas prone for repetitive tasks: finance, marketing, HR

7. Scenario planning to avoid anxiety

What this means is:

• Get started with scenario planning. For example: should you freeze hiring for 6 months, or invest to expand sales and take market share from your competition. What brings the best wins? 
• Focus on 2- 3 major uncertainties
• Check out your CRM data. What customer is most likely to cancel? Who could miss payments? Can you add in payment plans?
• Keep your KPIs flexible. Be prepared to adjust your goals and the metrics that measure them. Your KPIs may have to change based on the most recent data.
  
  

While the forecasts are more gloomy, US small businesses continue to hire.  That’s because small business owners like you are smart and scrappy and they sometimes look much further ahead than the 12 months predicted. They know that a recession can mean pivoting, changing and bringing more resourceful ideas and original solutions. 

For some it can be a time of deep resilience only to come out winning on the other side. 

But make no mistake, that’s not a matter of luck. It’s a matter of being smart and making strategic decisions. 

If you would like to know more about strategic CFO coaching for your small business and how to prepare for the 2022 recession, let’s connect over a call!