11 Ways To Prepare Your Company For A Recession

To ensure the survival of your business during a recession, it is important to be proactive and prepare ahead of time. Many businesses make the mistake of waiting until a recession has already started to make changes, which limits their options and can lead to rash, negative decision-making. By taking proactive steps to prepare your business for a recession, you can not only protect your company during difficult economic times, but also be better positioned to take advantage of any opportunities that arise during or after the recession. This article provides 11 actions you can take to prepare your business for a recession and gain an advantage over competitors.

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1. Manage invoicing and collections properly

When companies expect a recession, their finance department usually start spaying their vendors slowly. Invoices that were supposed to be paid in 30 days now get paid in 40 or 50 days. Invoices that were supposed to be paid in 45 days may take up to 60 days to get paid.

Companies may choose to pay invoices slowly in order to conserve their cash reserves. However, this can have negative consequences for your own business as the money owed to you is crucial for paying your own expenses.

To prevent slow payments from impacting your company, it is important to have a system in place for efficiently collecting slow-paying receivables. Invoice collection is a crucial aspect of any business, as it not only brings in cash but also allows you to assess the payment habits of your clients and gauge their financial health. An effective collections program should be a top priority, alongside sales and service. A good collections program:

• Offers 30- to 60-day terms only to good clients (see #2)
• Uses a well-written contract
• Implements a delivery acceptance letter
• Sends invoices promptly
• Follows up with clients regularly
• Handles disputes professionally

2. Offer payment terms carefully

Companies that sell to other businesses usually have to offer payment terms to clients. They offer terms because clients demand 30- to 60-day terms to pay invoices.

As a vendor, you don’t get much of a say regarding this demand. You have to offer terms if you want your client’s business. It is an unfortunate cost of doing business that can hurt small companies.

This leaves you with a problem. How do you determine if a client is creditworthy? Some business owners use client size and reputation as a way to determine if clients will be good payers.

Assessing client size and reputation can work — sometimes. However, some large companies with “triple AAa reputations” are actually bad credit risks. And there are also small, lesser-known companies that have excellent credit.

How can you tell the difference?

To determine the creditworthiness of a potential client, it is advisable to obtain a credit report, which will provide information on their past payment habits with other vendors. This can serve as an indicator of how reliable they will be in paying your company.

Credit reports can be obtained from Ansonia, Dun & Bradstreet, and Experian.

It is important to only offer credit terms to clients with a history of timely payments to vendors. Clients with a poor track record of paying vendors should be required to pay in advance or at the time of delivery.

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3. Transition “problem?clients”

Every business inevitably encounters "problem clients" who may make extra demands, frequently complain, pay late, or even underpay. These clients may become even more difficult during economic downturns.

It is important to consider whether these clients are worth the hassle and if they are contributing positively to your company's net gain. If they are not, it may be necessary to transition them out.

Clients who consistently pay late or underpay should be required to pay in advance, while unprofitable clients should be thanked for their business and released, provided that all contractual obligations have been fulfilled. It is important to review the terms of your contract before ending the relationship.

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4. Get credit from suppliers

In order to improve your cash flow, it is advisable to negotiate payment terms with your vendors that are similar to the terms you offer to your clients, such as 30 to 60 days.

It is also beneficial to establish good credit with suppliers during stable economic periods, as this can help to secure favorable payment terms that can be maintained even during economic downturns, as long as you continue to make timely payments.

Obtaining credit and favorable payment terms from your vendors can significantly improve your cash flow.

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5. Build a cash?reserve

A cash reserve can provide a safety net for your business during difficult times, giving you time and options to navigate challenges. Building a cash reserve involves setting aside a portion of your revenues in a separate savings account, but the challenge is to resist dipping into the funds unless absolutely necessary.

The size of your cash reserve will depend on your personal preferences and financial situation; some business owners aim to have enough to cover a month's worth of expenses, while others prefer a larger reserve. It is important to consider that a large cash reserve may limit your ability to pursue new opportunities, as the money is not being invested back into the business. However, having a cash reserve can be an important part of preparing for and surviving a recession.

However, there is one way to keep a cash reserve and grow: secure some emergency financing. You can combine a flexible financing product (see item #6) with a smaller cash reserve. This approach gives you liquidity while allowing you to use more cash. Keep two things in mind:

• Use the line only for emergencies
• During severe recessions, lenders can cancel lines of credit

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6. Consider securing some financing

Obtaining financing during a recession can be challenging, but having access to financial resources can be crucial for the survival and growth of your business. It is generally easier to secure financing when business is going well, so it is advisable to establish an emergency financing line before facing economic challenges.

Having a backup financing option in place can provide peace of mind and help you weather any potential downturns.

When seeking financing options, it is helpful to consider a business line of credit, which offers flexibility and allows you to borrow and pay back funds on a flexible schedule. However, obtaining a line of credit can be challenging, particularly for small businesses, as lenders often require a track record of success, substantial assets, and several years of financial statements. Alternatively, you may consider other financing options that may have different requirements or terms.

Another alternative for business-to-business companies is invoice factoring. Factoring allows you to finance invoices from slow-paying (but creditworthy) clients. This option helps improve your cash flow and provides funds to meet expenses.

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7. Optimize inventory

Balancing inventory levels can be a challenge for any business. Maintaining too much inventory can tie up cash without contributing to sales, while having too little inventory can lead to lost sales and potentially alienate customers.

To effectively manage inventory, it is important to align your stock levels with current orders and projected sales, while also allowing for a safety margin. It is also necessary to be agile and adjust inventory as market conditions change.

Getting stuck with excess inventory during a recession can be a serious challenge. Inventory does not move as quickly as it does during a normal economy. Moreover, if the economy really slows down, you may have to sell inventory at a discount — possibly at a loss.

8. Streamline operations

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In times of economic downturn, it is common for companies to focus on streamlining operations in an effort to weather the storm. While this approach may be beneficial, it is important to remember that it is equally important to optimize and streamline your business operations during good economic times.

By doing so, your company will be better equipped to handle the challenges that a recession may bring. Having a streamlined and efficient business model can provide a solid foundation for weathering any economic challenges and can help your company remain competitive.

The best time to streamline operations is always now. Examine your expenses carefully and cut anything not needed for the business. Consider outsourcing functions (e.g., payroll, some HR, etc.) that may be offered cost effectively by vendors.

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9. Drop unprofitable products /?services

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In order to identify and eliminate unprofitable products or services, it is important to work closely with your finance department or CPA. These professionals can help you analyze your sales and costs to determine which offerings are not generating a positive return on investment. Once these unprofitable products or services have been identified, it is necessary to make the tough decision to cut them from your business. While it may be difficult to let go of certain offerings, eliminating unprofitable items can help to streamline your business and free up resources that can be better utilized elsewhere. By focusing on the most profitable aspects of your business, you can increase efficiency and potentially drive overall profitability.

The only exceptions to this rule are products/services that you consider “strategic.” These items are sales that generate additional sales from other products/services to compensate for the loss.

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10. Apply savings towards sales and marketing

Consider applying the savings from the strategies mentioned in this article towards getting new sales. Companies often cut investments in sales and marketing during downturns. Not surprisingly, this cutting leads to lower revenues, creating a vicious cycle. Most experts recommend investing more in sales and marketing during downturns.

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11. Issue a Bond or a MTN

Most small to medium size businesses do not know that they can issue a bond or a medium term note and list it on a recognized stock exchange in order for their investors to trade them freely. As a small to medium size business, yes your bond will not have a rating unless we get a rating agency to rate it, but on the other hand you will be in a format where institutions can invest in your company, with a little convincing from your side off course!. Plus you will look more serious when raising money for your company.

Let me introduce you to the new Bond:

The reason this bond is revolutionary, is first of all, a usual small bond offering is in the 500 million range. The new bond reduces that bench mark to a minimum of 1 million, meaning any company with liquidity needs will be able to raise capital to carry out their projects. Secondly this bond is structured in a way to give investors, investing in the bond liquidity if so needed, by the bond being listed on a recognized stock exchange mainly in the DACH region (Germany, Austria, Luxembourg and Switzerland). Finally this bond can be structured in way to eliminate bank credit risk, meaning off-balance sheet; (E.g. If a company already has debt and a bank is first in line, the bond will be a second lien on the asset (subordinated).

The ultimate benefits of having the Bond are:

- Access to new equity

- Bankable Assets, easy to transfer

- Simplified administration

- Standardization for multiple issuing

The Bond’s use cases are:

- Financing of real estate or expansion projects

- Corporate liquidity management in groups of companies

- Start-up financing

- Convertible bonds. The bonds will be subject to Swiss law and can be easily subscribed to via the subscriber’s bank

- clearing via Euroclear, Clearstream or SIX SIS AG.

The purchase price is credited to the issuer’s bank account with a trusted custodian such as a Bank. The subscribed bond is posted to the subscriber’s securities account and is visible on his/her account statement. Interest payments and redemptions are made directly to the subscriber’s bank account. It will take approximately 4 to 8 weeks to issue the bond.

In conclusion the basic 6 tasks you have to perform in any business is to reduce 3 and increase 3.

1,Reduce time to get paid (receivables),

2. Reduce your cost of goods sold (COGS)

3. Reduce Your Inventory and push for Just In Time Orders

4. Increase the time to pay your invoices (payables)

5. Increase business line of credit (revolving & working capital)

6. Increase top of funnel marketing as well as brand strength marketing

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In monopoly (UK Version) it works out that Pentonville road, Angel of Islington & Uston, the light blue sites on the left give you 159% return and are the best in terms of arithmetical return but the dark green sites which are what people think that are better Oxford Street, Bronze Street, and Regent Street only give you 101% return so they are very bad. The next best sites are the orange ones which are Bow Street, Vine Street, and Malbrough Street. They give you 141% return but they are better than Pentonville Road, Uston & Angel of Islington because there is an increased incidence of landing on them.?You land on them more often and the reason for that is, there is a card in the chance that orders you to go to jail. And if you go to jail, you are past the blue sites and about to land on the orange ones. In addition to that, there is another card in chance, ordering you to advance to Pall Mall which does the same thing, it takes you past the blue sites and another one demanding to advance to Marly Bourne Station.

There’s also another one demanding you to go back three spaces, which in one position will land you on Vine Street. So there’s an overwhelming case for having the orange sites. Now, most people do not know that.

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"Life is movement and movement in my opinion is represented as a wheel. It may be a car wheel, bicycle wheel,?or even a semi-truck wheel. In the end, you choose the size, width,?and type of rubber. What’s even better, you also have a choice to fill it with more air than the recommended pressure (for some that’s un heard of), however, one thing is crystal clear; to live a full life and have choices you must be willing to transform into a wheel rather than being a spoke on that wheel."

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Disclaimer: This material provided in this article should be used for informational purposes only and in no way should be relied upon for legal or financial advice. Also, note that such material is not updated regularly and some of the information may not, therefore, be current. Please be sure to consult your own financial advisor and lawyer when making decisions regarding your financial or legal management.

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