A First Foundation Blog

How to Prepare Your Business for a Recession

2 minute read

Despite the flashing indicators warning that we may be entering into a period of economic contraction, we will not know if the United States economy has entered a recession until after the economic data confirms it after the fact. That doesn’t change the fact that business owners can do things now to prepare their companies for the possibility that a broad recession is in the offing, or may have already begun. Here are some suggestions of what you should do to help make sure your business is as recession-ready as it can be.

Take a good look at recurring costs and expenses that make up portions of your overhead to see what can be reduced or even eliminated. Reducing the regular or monthly cash outlay for things like office supplies, utilities, insurance, even travel and entertainment, or any other variable costs can ensure that your business is running lean enough to survive and thrive in spite of a challenging economic environment. If it’s been a while since a review of expenses like this has been done, you may be surprised to find how much you can save.

Thoughtfully review any large cash expenditures that are coming up and consider postponing or delaying them until the future is clearer. This can include replacing staff that have recently left or any planned additions to staff, buying new equipment, or even bulking up inventory holdings. With the growing possibility of recession, now likely isn’t the time to distribute large sums of earnings out of the company or buy out a minority partner either. Conserving cash during periods of uncertainty is a strong strategy to ensure your business can weather any storms. 

Building cash reserves by reducing expenses and delaying large outlays can help. But so can ensuring access to bank lines of credit. Make sure you have renewed any line of credit that your company may have, and consider asking for an increase from your bank now while your recent financial results are still strong enough to support it. Every operating business should have some sort of line of credit—so if you don’t have one already in place, then get one. Similarly, if you must spend money to replace fixed assets or equipment, look to your bank or other lender to provide the financing for the purchase so that the company’s cash can be conserved and retained for the “just in case” that could become a reality in a potential recession.

Lastly, economic downturns can also present opportunities as the competitive landscape is thinned. Pay special attention to opportunities presented by competitors scaling back or other market disruptions, especially ways to gain a greater wallet-share of your existing clients’ business. While running your own business successfully is challenging enough in a recession, many of the most well-prepared companies find downturns deliver the right conditions for them to achieve significant growth and come out even stronger on the other side. 

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Matthew Ashworth, SVP, Director of Commercial Banking
About the Author
Matthew Ashworth, SVP, Director of Commercial Banking