Economists generally define a recession by a fall in Gross Domestic Product for two successive quarters. Harry Truman had a more concrete definition, “If your neighbor gets laid off, it’s a recession. If you get laid off, it’s a depression.” Savvy business owners are preparing for an economic slowdown, without knowing it’s length or severity. In a recent survey, eight of ten business owners believe the economy will enter a recession this year. Here are a few things you can do now to better prepare for a shrinking economy.
- Focus on Your Cash Flow. Cash is king, especially during a recession. A strong economy can give a business owner that their business is good when they are really running a negative cash flow. The average business has only enough cash to operate for 27 days. Now is the time to tighten up your customers payment terms. Consider adding late payment fees to encourage timely payments from your customers.
- Review your payables. Payables are often overlooked during good times. Business owners need to review every expense to make sure cash is not being wasted. Know when each bill is due, and if necessary, stretch out the payment past it’s due date.
- Find the Right Factoring Company. Factoring companies provide financing based on the credit strength of your customers, not the business owners personal credit score. This is especially important if you have been using your personal credit to shore up your company’s finances. Partnering with a factor will provide you with the cash flow you will need to ride out a storm. Also, a good factoring company will protect you from slow paying customers and potential bankruptcies.
- Double-Check your Books. Are all your bookkeeping entries up to date? When is the last time you reviewed your budget? Are your financial statements current, and correct? It is critical to have this information as you will have to make decisions regarding pricing, payroll, and expenses.
- Invest in Growth. It’s tempting to only slash expenses. But be on the lookout for opportunities to grow your business. Be selective when reducing costs, you want your company to be in position to quickly take on new customers.
Your company is important to you, your customers, and the economy. We do not know what the future is bringing but it is up to you prepare now for the coming storms.
For over four decades American Receivable has been a reliable partner to their clients. Providing the expertise and cash to help our clients thrive, even during the most challenging times. Call today or complete our quick online application form to find out how American Receivable can put your company on the road to success.