How to Prepare for a Recession
Read time: 3-4 minutes
The "r" word ("recession") has been making rounds in recent weeks. Last week, Morgan Stanley reduced bank EPS estimates, taking a recession into account in it's base case.
We won't pretend that a downslope isn't coming, or that it hasn't already started. But, what we can do is give advice on how to try and survive it and what things you can start to think of right now better prepare.
Here are 4 things you can do to prepare for the COVID-19-induced recession as a business owner.
DON'T DRAG OUT PAYMENTS (COMING IN OR GOING OUT)
You want, and need, to protect your cash flow more than ever. That said, you might be tempted to let invoicing lapse (with payments going out to your vendors and payments coming in from your clients). You'd be doing yourself (and them) a disservice by doing so, because having your invoicing system go uninhibited keeps things moving as they need to.
Continue to send your invoices on time and personally follow up with any late payments. And, of course, handle any disputes with the utmost professionalism and courtesy.
Many people are going through hard times financially. While we don't recommend delaying invoicing to offer help (or put a knot in your own systems and processes), there's nothing in the book that says you can't be open to negotiation on a payment plan or sliding scale (depending on your own ability).
Revisit pricing & value
Your clients will probably be shopping around for a better deal during tough times. This doesn’t mean you have to slash prices on everything you do and sell, but it could mean making a new service or product to meet the needs of today.
Perhaps you keep the price of something the same, but you add something else to it at no increased cost to them (just make sure it’s something you can manage to afford, either at-cost or in time). Wegmans Food Markets is a perfect local example of temporary price reductions during the summer on popular items, such as ground beef, some fruit and vegetables, dairy, baked goods and in-house novelty items.
They do this to serve the community, even without a recession in place, and just like that, they increase brand-loyalty.
Not a bad model to follow.
SHIFT DIFFICULT CLIENTS TO ADVANCE PAY TERMS
This is a general good business practice, but if you have a client that is continuing to underpay, it's a good idea to re-adjust terms for some kind of advance payment agreement (either 50% or full up front, it's up to you) if you're legally allowed to do so.
Again, this is about protecting your cash flow.
If the client consistently underpays (or, just doesn't pay), perhaps it's time to review your contract with them. Consult your legal team and, if possible, it may be time to sever ties and move on.
This same mentality should also apply with any other unprofitable things in your business, whether a product that isn't performing well or a service that isn't up to par.
UP YOUR SALES & MARKETING BUDGET
What was a required purchase in February probably has become a “can’t-live-without-this” item right now (we’re looking at you, toilet paper). If you have a product or service that fits that mold, now’s not the time to cut your sales and marketing budget - it’s time to increase it!
This might seem counterintuitive, but now is not the time to limit your visibility to potential customers. It’s also time to revisit your messaging, especially in times of crisis.
The mentality of “getting through this together” is powerful. If you can introduce new “value” products or services during this time to serve your market, then do so and market it!
Oddly enough, many companies will slash budgets in marketing first during any sign of market trouble, but then are surprised when this results in overall lower sales.
Now is not the time to make cuts to your marketing roster or your ad budget, for example. If anything, now is the time to review them for an increase.
Yes, clients will possibly have less money, or at least feel like they do, and will be much more frugal. Since your demographic’s behavior will change during a recession, it’s imperative to learn how you can still meet their needs.
We’re here for you
If you’re unsure how to proceed during these coming weeks and months of the “new normal”, give us a call.
We’re here to answer your questions.
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