No one likes the “R” word, but many are sounding the recession alarm. In this climate, one of the many immediate challenges is preparing your agency for a recession. With insight from Forbes, The Economist, KPMG, SHRM, and the U.S. Chamber of Commerce, we’ve prepared some practical tips and advice we hope is of real, actionable value should the worst happen.
1. Manage your cash flow.
In all economic weather, cash is king. Cash flow can and will make or break your company. Over 80% of companies fail due to cash-flow mismanagement. When times are tough, managing cash flow can be challenging. Higher than normal expenses and lower revenue mean cash is tight, and balancing your budget becomes a tightrope act. To get a grip on your agency’s cash flow:
- Look at your cash flow statement daily, and start forecasting (if you aren’t already) with trailing three-, six-, and twelve-month cash flow forecast charts. These charts can help you anticipate times when cash will be tight so you can implement strategies to lessen the impact of challenging times.
- Create best- and worst-case scenario budgets that help you better prepare for unforeseen challenges or triumphs.
- Follow up regularly on past-due invoices from clients.
- Double-check your payables. This is easy to overlook when times are good and you are busy. Look at all the outstanding payables and when they’re due. Review totals to ensure they’re accurate. And if necessary, stretch out payments to their due dates.
2. Get a handle on your costs.
With inflation still making itself felt and continuing to drive costs up, an economic recession will only make escalating cost pressure more difficult. Do everything you can now to evaluate your operations and trim the fat to strengthen your cash position. This does not mean cutting programs and resources required for growth. It means cutting out overhead and operating expenses where viable and instead focusing your investment on marketing and advertising efforts to seek growth opportunities whenever possible.
3. Protect your revenue.
Use unit economics to identify your strongest revenue channels and then protect these revenue channels and the profits they generate. This might mean focusing even more on lines of business and even clients that generate the greatest profit and scaling back on others.
4. Be smart about debt management and new financing.
In difficult times, paying off debt can seem tempting. However, this can deplete your cash reserves and leave you vulnerable if you experience cash flow problems. When going into a recession, assess the interest rates you’re paying on your debt and consider focusing on paying down the highest.
If your cash reserves are already low, consider looking into potential financing options, especially if your agency has seasonal cash flow issues. Establishing a line of credit with your lender might save you stress in difficult times and may be easier to get when your business is stronger. However, before taking on new debt, carefully assess the additional costs and potential payment amounts to ensure the debt won’t simply put a bandage on a more serious, systemic financial wound in your company. Your Credit Union can help with unbiased advice and affordable financing, including, low-rate Credit Cards (as low as half the rates of banks).
5. Strengthen your cash reserves.
In addition to considering how you manage and take on debt, focus on your agency’s cash reserves. Savings can carry you through difficult economic times. For example, instead of reinvesting profits in your agency, you might squirrel the excess away so you can rely on it on rainy days. Try keeping three to six months of expenses in an emergency cash fund. Your Credit Union currently offers top national rates on a number of savings products to suit varied needs and investment timeframes.
6. Stay on top of your receivables.
During a recession, everyone struggles financially. This means your customers might start paying more slowly, and you might have a more difficult time collecting accounts receivable. Evaluate your clients’ paying habits now and stay on top of collections. Your Credit Union offers several personal loans at rates far lower than most credit cards to ensure your customers never miss a premium payment and risk losing coverage on all they’ve worked so hard to achieve.
7. Make data-driven decisions.
When times are tough, you must make strategically sound decisions. When cash is tight, the slightest misstep could mean the difference between success and failure. Even if your instincts as an agency owner are good, you need to consult your numbers, look at your company’s financial trends, and evaluate forecasts before you make any changes in your business.
Final thoughts.
There is nothing you can do to control the direction of the U.S. economy. So, it’s important to focus your attention on what you can control: your agency business. Yes, a recession will bring countless challenges and hurdles for you and your business, but embracing the challenges, knowing your numbers, and leaning into smart changes with confidence can help you overcome and emerge a stronger agency and leader.
Note: The information provided here should not be considered investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
