Three critical steps for SMB recession readiness
Concern over the unknown has small and medium-size business (SMB) leaders confused and apprehensive. The pandemic-induced slowdown has facilitated insecurity, from the way they plan to how they make decisions.
The professionals at Freed Maxick stay abreast of the economy, indicators, trends and hypotheticals to understand the potential impact changes might have on clients and their business.
In the first article of this series highlighting recession, stagflation, and preparedness, we recommended two action items every business should perform to assess preparedness. We now turn our attention to three significant priorities leaders should focus on first: finances, data and people.
PRIORITY RECESSION PREPAREDNESS
1.) Finance Strategies to Prepare for a Recession
One smart strategy is to prepare the business to sell regardless of whether or not there is an intention to sell, now or later or ever.
- Assess cash flow, which is an indicator of the company’s current health and performance. Managing the day-to-day operations and strategizing a future outcome are both dependent upon cash flow. A recent survey found that 4 out of 10 small business owners didn’t have enough cash to meet their business goals. Another study reported that, “82% of businesses fail because of cash flow issues”. Having a better understanding of cash needs and potential spending gaps provides prudent guidance for making tactical decisions.
- Assess financing. Know what your finances look like and what options you have should you require cash. How strong is your relationship with your banker? Do you have a line of credit available you can access now? Your accounting team can help you to understand your risk tolerance so that you don’t overextend.
- Review budgeting and forecasting. An annual budget and business forecast will help you stay on track with plans for growth and spending all in one place. A strong comprehension of where your organization is and where it wants to be can also help your accounting team identify opportunities for tax savings.
- Control costs. Identify unnecessary spending to cancel quickly, products and services that can be paused easily, and contracts where cost and terms can be renegotiated. For many reasons, reductions in costs do not always translate dollar for dollar into profitability, and by cutting too deeply, you risk inflicting damage. But by cutting or trimming wisely, you can improve profitability.
- Key performance indicators (KPIs) support a strong strategy and good planning to better position your company. Track KPIs continually to benchmark at different points in your business cycle. Understanding how your organization responds to various economic circumstances will be critical for navigating through them now and in the future.
- Your inclination might be to bring more of your accounting in-house for better control, but it could be more risky than helpful. Potential tax credits, incentives, and stimuli are monitored very closely by accounting firms like ours. A strong and knowledgeable accounting partner will help you to make decisions that create more financial stability.
- Create an emergency fund so that you know you have a cash reserve should you need it.
2. Staffing Strategies to Prepare for a Recession
In spite of a downturn, scaling back on staff should only be done in dire circumstances. The Great Recession has made it such that good staff are difficult to find and harder to keep. Committed, productive workers are invaluable and should be retained at all costs.
- Affirm that you have the right people in the appropriate roles. These are the professionals who require little managerial oversight, are able to identify issues prior to them occurring, and contribute confidently. Ensure they have the tools and autonomy to be successful in their roles. Your trust in them should be evident.
- Train, cross-train, re-skill, and/or upskill your staff so that there is no redundancy and you are able to delegate more efficiently. Employees recognize and appreciate that proper training in a worthwhile skill is an investment you are willing to make in them. Gallup research shows that engagement and loyalty are tied — When engagement lacks, so does loyalty.
- Ensure that repetitive tasks are automated creating better efficiency in menial work that is not a valuable use of your talent’s time, i.e. invoicing. Particularly for back office functions, like bookkeeping, automated systems are more dependable and keep information organized, updated, and timely.
- Whether automated, outsourced, or curated by staff, continue your marketing efforts. Marketing should never be considered overhead, particularly in challenging times. Strengthen your digital marketing to expand beyond your geographic market, keep your website current and informative, invest in SEO to help people find you easily, and use email as a vehicle to consistently reach prospects — and keep customers!
3. Data Strategies to Prepare for a Recession
Data used strategically should be helpful for growing and sustaining an organization. However, much of the data available to your business looks backward at performance and other metrics (e.g., last month, last quarter, last year). As a result, you can’t easily plan for growth, monitor current progress, or intervene to prevent the organization from straying off course.
While data is intended to be used intelligently, it’s difficult to cull valuable nuggets and assemble it in ways that deliver useful insights. MAXIS helps obtain, use, and protect your data. It defines legible insights and provides actionable strategies.
- During particularly stressful periods, hackers take advantage of SMBs that have no idea where their exposure lies. Freed Maxick’s Cybersecurity team partners with MAXIS to secure vulnerabilities, reducing your risk and safeguarding data assets from theft.
- This collective team also supports an investment in the cloud. The cloud enables teams, including outside accounting partners, to have access to identical information safely stored in the same location assuring better communication, collaboration, and workflow. Cloud-based tools have better reliability, timeliness, accessibility, and security, particularly with a hybrid workforce.
Taking action will not only prepare your organization for the potentially challenging, uncertain future, but strengthen it for today. Partnering with MAXIS creates better processes, improves efficiencies, reduces risk, and strengthens the bottom line with confidence, regardless of outside unpredictability.
Is Your Business Prepared for a Recession?
If you would like to explore preparedness in your organization or would like more information on any of the recommendations in this article, please contact Alexis Becker for a complimentary consultation at 716-332-2619 or alexis.becker@freedmaxick.com.