Preparing for the next recession!

With the current tumult in the stock market, the inverted yield curve, and with both China and Europe slowing down, it is not a question of if, but when before the US is in a recession.

If you started your business after 2008, you have not experienced a slow-down in the economy generally and hopefully not for your business specifically. You might have heard other people  talk about it (maybe even your parents), but that is not the same.

Regardless what happens between now and next November, you are in for a roller-coaster ride! Based on my experience and opinion,  the time to prepare for a coming recession is now. So here are a few things that will help you.

Hoard Cash

What is cash? These days with the multiple ways of getting paid or paying, it is hard to stay on top of your most important asset.

Make it a point to look at your daily balance in the morning and the evening. It is your life blood and you need to know where you stand. Have someone create a dash-board that alerts you when the balance is out of line. Also, you want a cash-flow forecast prepared every week and you need to look at it.

I don’t know if it was Steve Jobs or Bill Gates who insisted that their company keep 12 months of expenses on hand in cash at all times. Regardless who said it, it is something I totally believe in and practice.

Evaluate your customers

We all are familiar with the Pareto Principal so now is the time to take a close look at the top 20% of your customers. What do they depend on to be successful? How many of them could go out of business because of a Black Swan Event or because their main components come from China?

You need to look at them, and if needed make some hard decisions.

Evaluate your vendors

Look at your 20 top vendors and see which ones may not survive having their bank credit line removed or have the funds to get through a credit squeeze. Line up alternatives.

Evaluate your employees

If sales drop by 30% overnight – who do you let go? Who is mission critical and who is not. That is not an easy process, but it is better to plan now rather than when the proverbial matter hits the fan.

Credit

This is also the time to get your personal finances out of the business. Stop using your personal credit card for business supplies. Switch to a corporate card, there is less personal liability if things go wrong.

If you have a credit line from a bank, this is a good time to see if you can increase the amount – just in case.

Conclusion

As we saw with the fiasco from 2008, all recessions end eventually, the problem is that you don’t know when. So stay prepared!

Run lean, run mean and continue to prosper!