Recession-Proof?

We're experiencing inflation.

There's talk of recession.

You're getting nervous.

You're a planner. And you plan top get ahead of this.

A quick search for ideas leads you to countless articles with "5-steps" to take to prepare your business for the recession.

Recession or no recession, there are some things you can always be doing to make your business more resilient.

First, what does having a resilient business mean?

For me it meant building business and financial models that could weather a 128% decline in revenue from 2019 to 2020 and still sustain me, my family, and my business. 

A business that in 2021 could recover most of revenue lost the year prior and increase 2022 revenue by 48% over 2019.

I’m not saying I knew I could make it through the pandemic relatively unscathed and bounce back.

What I knew was that if I was going to own my own business - be my own boss - I had to be clear about a few things right from the start.

• I wasn't replacing a paycheck. It had to do more.

• I wasn't going to live client-to-client or fiscal year-to-fiscal year.

• I wouldn't grow the business at the expense of not paying myself.

• It was my responsibility to make sure the revenue and expenses were managed well.

Were all things things true from the outset? 

No. But it wasn't long before they were. 

And I'm still getting better at creating a business that consistently gets better at attracting my ideal clients - interesting, driven, creative business owners who I can help build sustainably profitable companies.

So what does this have to do with building a recession-proof or resilient business? 

Let's break this down a little more:

MORE THAN A PAYCHECK

I didn't want to replace my income. I started my business to make more money than my current job was paying or a comparable job would pay me in the future. 

When I think about what my business needs to do for me, my family, and my community the answer is that it has to provide MORE than enough.

For me and my family that means being able to generate I want to take home every month to pay the bills,  add to short-term savings, increase retirement savings, and to pay the taxes on my net income.

For my community it means having more than enough to make donations of time, talent, and treasure. 

For my business it means having what is needed to fund operations, maintain a reserve, and have profit left over for whatever I want.

I didn't replace a paycheck. So in response to the pandemic, inflation, or a recession I have more than a paycheck to fall back on.

PLANNING

I know what it's like to worry about making payroll.

And I know how easy it is to spend the money when times are good.

I also know it often feels like you have little control over whether its feast for famine.

BUT you do!

That's why with every client I discuss and often help build financial projections.

By projecting your business into the future and imaging what you want its financial future to look like, you’re able to see beyond where you are to where you're going. It maps the way to turn the desire for more than a paycheck into a reality.

With regard to resiliency, it gets you in the habit of exploring What if scenarios while you have time to be curious and creative.

It takes theoretical revenue numbers and make them real, backed up by business development strategies that require clear actions tied to and aligned with expenses. 

It gives you an anchor that keeps you tethered to your goals even when a storm makes it harder to stay focused.

SAVING

And financial projections are a great tool for figuring out what it will take to save enough money to cover 3-6 months of expenses AND build a reserve from which you can take your regular owner's draw should sales dip, payments lag, or COGs increases more than revenue.

Similarly, finding ways to save time and gives you the flexibility to evaluate your options and make new choices.

By pro-actively managing cash, credit, and savings you increase your resilience and ability to survive a recession.

• Get credit before you need it. Don't just think about banks. Suppliers can extend credit too.

• Refinance and repay debt.

• Build a reserve.

• Manage cash flow. Take a hands-on approach so you know when money is coming into and going out of your business. Some expenses "hide" on the balance sheet. Your income statement only tells part of the story.

• Invoice on-time to get paid on-time.

• Follow-up with people that owe you money. Collect.

• Create contracts with payment terms that get you paid early and often, with late fees and other penalties for when that doesn't happen.

• Cutting expenses only goes so far and you do have spend money to make money. Know what you're spending money on and why.

• Negotiate.

• Look for and leverage economies for scale for buying power (like group purchasing through associations.) 

• Reduce waste and rework. Neither show up as line items on your financial statements but they cost you real money.

• Automate what you can.