Prepare for a Recession By De-Risking Your Business

Prepare for Battle and Start with De-Risking. The advice we are giving our clients is to prepare for a recession. What does that mean?

You need to de-risk your business and prepare for opportunities. In this article, we are covering risk, in the next one we will discuss opportunities.

1. Build cash. Put off investments and travel that aren't absolutely necessary. Slow down or freeze hiring. And if you're thinking of letting people go, do it now. The environment isn't getting more forgiving. Your best friend in a recession is a strong balance sheet.

2. Double down on customer relationships. As the recession hits, your competitors are coming for your customers, hard. They'll try to point out your flaws. They will undercut you on price. You need to build a moat with your relationships or deepen the ones you already have.

3. Reduce operational leverage. Operational leverage refers to fixed costs in your business model that enable you to scale your profits as you grow. But the sword cuts both ways. Higher fixed costs mean you get beaten up when there is a contraction. Now is the time to make your costs flexible and variable.

4. Monitor your receivables carefully and take action aggressively. If something goes south with a customer, you want others to be waiting in line to get paid. While this seems to contradict my second point, remember that a customer who doesn't pay you isn't really a customer.

5. Avoid long-term financial commitments. When a recession hits, lots of stuff is going to get cheaper, from copiers (give or take tariffs) to office space. Waiting may save you a lot of money.

6. Buy tactically. If you know that a purchase you need to make will become more expensive because of the tariffs, buy now from existing inventories before the price hikes kick in.

7. Revisit your budget and forecasts. Your budget likely envisioned a more positive economic environment. It's time to see if that budget still makes sense. And if you don't have one, make one or hire someone to do it for you.

We help our clients win by making great business decisions at their most critical moments. We would be happy to discuss how we can help you de-risk your business.