What Does A Recession Mean For My Business?

Current market data shows that we are potentially entering a recession. While that can be a terrifying word to hear as a business owner, it is possible to not only prepare for an economic downturn, but also to achieve more despite it.

That’s exactly what we want to help our business owners do as we look ahead and plan for the future. “While the economy is showing multiple signs of a recession on the horizon, that doesn’t have to be a bad thing.

In fact, I think it will be healthy for the economy as a natural reset to the market, as well as to people’s behaviors since the pandemic,” explained John Vance, President and Visionary of Vance Wealth in Santa Clarita. “As a business owner, it is possible to prepare for this recession in a way that sets you up for the wins instead of the challenges.” In fact, when your business is prepared for a downturn, there are actually opportunities to grow, innovate, or pivot to create more long-term success. To help you get started, here are the three steps we take ahead of an economic downturn.

1. Build Up Cash Reserves During a recession, sufficient cash reserves are critical. If there’s a disruption in sales, your cash savings will help you weather the storm. For those times when even your reserves aren’t enough, we recommend establishing a backup option, too.

Since it’s typically harder to borrow money in a recession, it’s wise to secure a line of credit that’s large enough to cover at least two months of expenses. For example, if your business spends about $150,000 a month, then you should have a $300,000 line of credit established before the recession officially begins. “It’s important to do this now because banks prefer to lend money when you don’t need it – because it’s less risky,” John explained. “That’s why the best time to increase your line of credit is when you think you’ll never need it. Having access to capital frees you up to make the best decisions during a recession, rather than making defensive decisions out of need.”

2. Grow Where It’s Needed Once you increase your access to cash, it frees you up to grow your business however you need to, once the market begins to change. It gives you choices, so you can respond to market trends thoughtfully and with purpose. For example, you can make strategic investments, expand your sales staff, or invest in technology that helps you reach more people – whatever is right for your business. “On the other hand, if you’re in protection mode, you’re busy maintaining the status quo instead of making progress. It doesn’t encourage a growth mentality, so you often feel like you can’t adjust,” John explained. “But, as we all learned in 2020, it’s so important to make responsible changes during times of market volatility. That’s how you find new revenue opportunities, even in tough times.”

3. Evaluate Your Team While preparing for the worst is essential, it’s just as important to take advantage of the opportunities created by a recession. For business owners, that means taking the time to evaluate and improve your team. Especially when times are tough, your team needs to be firing on all cylinders. Every employee’s performance and production value matter greatly in an economic downturn. Plus, the talent pool typically expands as more people change jobs due to layoffs, restructuring, or general unhappiness. So there can be an opportunity to optimize your team.

“At Vance Wealth, we evaluate our team annually, in any market. We want to make sure each person is the right fit for our company culture, has a good work ethic, and is working in the right position,” John explained. “During this process, a good question to ask yourself is: ‘If this employee was not working for me today, would I hire them again, knowing what I know now?’” While this is a crucial step right now, it’s not always an easy one, which is why so many business owners skip it. If your team is due for an in-depth evaluation, now is the perfect time to start the process. Don’t wait any longer to put the right team in place for your business.

Are you worried about a potential recession? Do you need support as you take these valuable steps to prepare for your business’ future? Book a complimentary consultation with one of our Wealth Advisors by calling 661-775-0950 or visiting VanceWealth.com.