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5 Ways to Prepare Small Businesses for a Recession

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Both you and your small business clients have likely been dealing with all the effects of inflation as of late — the prices of raw materials have skyrocketed, shipping costs are way higher than usual, business commutes now weigh much heavier on your bottom line due to astronomical gas prices; the list goes on. Small business owners have likely been hoping for a respite from it all, but unfortunately there may be another big problem on the horizon: a possible recession. 

Jul 28th 2022
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Periods of vast inflation are oftentimes followed by a recession, where consumers spend much less because they dealt with increased prices for too long. A drop in profits can really hurt any business, so how can you prepare your clients for this possible scenario? In my experience as the CEO and founder of CMA Exam Academy, I've found these are the best ways to prepare a business’s finances for a recession:

Remember: Cash Is King

When your usual customers choose to cut back on spending, this means you will likely see a lot less monthly sales than you’re used to. However, your business will still need to be able to afford all of its monthly overhead expenses, such as payroll, utilities, payments for software subscriptions, rent for an office (if you have one), etc. So it is absolutely essential to ensure your company has strong cash flow and cash reserves to sustain it during a recession. Funds will need to be readily available to keep your business running smoothly if sales drop.

This means that there is no better time than now to start directing a much greater portion of profits into your cash reserves. If you're considering long-term capital investments, it would be in your best interest to evaluate the level of cash outlay you'll need to commit and its impact on your day-to-day cash flow requirements. 

Cut Overhead Costs NOW

As stated above, a positive cash flow and strong cash reserves will be pivotal to help keep your business running well during a recession. And if cash inflows drop in a recession, then it will be paramount to focus on decreasing cash outflows — this will keep much more cash in the company’s coffers in case of an emergency. One way you can do this is by cutting operating costs as much as you can now rather than later. 

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