How to Prepare for a Recession
There’s been quite a bit of recession buzz, as economists and others try to determine when it will strike. The key to surviving a recession is preparation and a reduction in spending. Businesses can already begin preparing for the recession by following some simple tips. We are sharing several that can be implemented by small businesses, individuals, and advisors. Since we service advisors, we will share a couple of tips unique to their situation.
Understand the Cycle
You can file this one under “knowledge is power”. The simple fact is recessions are cyclical. We experience periods of expansion followed by recessions and a period of recovery. Some recessions are more detrimental than others. Our last one was pretty awful, and I think we’ve all got a scar or two. Not all recessions are equal though, so this next one could be milder. We just don’t know. What we do know is that we will recover, history tells us so. As things appear to sour, we need to remember that our economy will endure. The worst thing any of us could do is act emotionally and irrationally with our finances.
This one is particularly hard if you’ve grown accustom to spending more. As the recession looms, you should decrease unnecessary spending. Saving and investing wisely are better options for businesses. If you have significant debt, you should try to lower the amount or completely pay it off. Debt is a significant factor in the economy equation. Start by increasing payments on debt and reducing spending where it hurts the least. Maybe try eating at home more or spending less at Starbucks.
For business owners, spending is important to your business. It takes money to stock shelves and market your services. So what’s the lesson here? Spend only to increase income. If it will add value and increase your earnings, then by all means spend. Try to reduce bills, negotiate lower prices & terms, and track your marketing dollars.
Explore Income Opportunities
Are there other ways you can generate income? Millennials have really shed a light on side hustles. Due to higher student debt and stagnant wages, younger folks have had to figure out alternative ways to generate income. As an entrepreneur, you should be doing the same! Really take a look at your current services and products. What’s working? What’s not? Next, take a look at your customers. What are their needs right now? Try to develop services or products around those needs.
If you’d rather do your own thing separate from the business, that’s perfectly fine. If you don’t mind working harder and longer, go for it. An example would be an artist tutoring on the weekends.
I briefly mentioned this one above. By reducing your debt, you won’t have to worry so much about someone coming to take your business, home, etc. Another reason to reduce debt is so that you ride the wave if you can’t generate enough income. If you have virtually no debt and sufficient savings, a recession shouldn’t harm your business. That doesn’t mean you won’t have to make sacrifices, but you’ll still have a business at the end of it all.
Tips for Advisers
- Talk with your clients now about their retirement plans and determine the appropriate amount of risk.
- Provide helpful classes. Topics may include: how to reduce debt, negotiating variable costs, reducing grocery bills, etc.
- Ensure your operation is running lean or make necessary changes now.
- Analyze your costs. Can you reduce overhead? Office space is one of the highest cost. Consider acquiring an address through a mail carrier or look into co-working spaces.
- Bring the team together to develop a marketing and communications strategy. What works? What doesn’t? Who would you like to reach? How will you reach them?
In conclusion, there are steps you can be taking now to prepare for a recession. Is your firm concerned? What issues concern you the most right now regarding our economy? We’d like to hear from you. Comment below or join the conversation online by following any of our social media pages.