Many economic and government leaders are predicting that the United States will enter into a recession within the next year. We want your business to know how to handle inflation and looming recession.
Because the U.S. is experiencing several supply chain issues, and inflation continues to rise, these signs are, unfortunately, pointing toward a recession.
Ben Casselman, a writer for The New York Times, states that the pandemic recession of 2020 only lasted for two months. Although this recession did not last long, he reports that during this time, “Employers cut 22 million jobs in March and April, and the unemployment rate hit 14.8 percent, the worst level since the Great Depression.”
A possible recession may cause business owners to feel uneasy, but the best way to combat the looming recession is through preparation.
If you start to make smart decisions for your business now, you can prepare for the possible effects of a recession and keep your business running smoothly.
Focus on Cash Flow
A strong cash flow is one of the key differences between a struggling business and a successful one. With rising inflation and a looming recession, one of your safety nets will be having cash on hand.
If you want to improve your cash flow, there are several actions that you can take:
- Review your expenses
- If you strategically time when you pay your bills, rather than paying them all at once, you won’t be hurting for cash throughout the month.
- Send invoices to your clients as early as possible
- This practice allows payments to trickle in slowly and keeps your cash flow steady.
- Create a user-friendly payment system
- This makes it easy for your clients to pay. Consider using accounting tech tools to create bills, send invoices, set up payment reminders, and more.
- Review your vendor contracts
- If several of your bill due dates fall on the same day, talk with your vendors about moving these payment dates in order to stagger your bills.
- You can also look over your list of vendors to make sure that they are all still a good fit for your business. It’s possible that other vendors can provide better prices or services, so do a bit of research on your current vendors and their competition.
- Keep close tabs on your cash flow
- If you check your cash flow weekly, you will be able to notice any significant changes and make adjustments accordingly.
Improving your cash flow is one of the best ways you can handle inflation and prepare your business for a looming recession.
Build and Stick to a Budget
In the current financial climate, you can’t afford to be frivolous with your spending. It’s very important that you track your expenses diligently and refer back to your budget before making purchases. This practice will help you reach your cash flow goals and ensure you’re not overspending.
As inflation rises, you also need to remember that you may have to adjust your budget. Check your budget monthly, if not weekly, to ensure it’s still attainable and reflects your essential expenses.
Rely on Forecasting
Right now, we are experiencing lots of economic changes which are continuously impacting our businesses. To predict how these ongoing changes could affect the future of your business, you should create forecasts.
Good business leaders will create multiple forecasts. These forecasts will analyze what would happen if they:
- Cut expenses
- Generated less revenue
- Changed prices
- And more
The data generated from these reports help them prepare for a variety of scenarios.
Knowing what you can expect if a recession hits will help you make informed decisions during times of difficulty, so be sure to forecast and create a plan for any potential changes.
Keep a Close Watch on Inventory
Inflation has already caused issues with supply chains and businesses’ inventories, so when the looming recession hits, there’s a good chance that your inventory will be impacted again.
During these changing conditions, it can be hard to estimate how much inventory to keep on hand; you have to be able to serve your customers, however, you don’t want to have excessive inventory as that will negatively affect your cash flow and slow operations.
The most important thing you can do is track your inventory carefully.
This task alone will greatly help your cash flow. Then, you should look at historical data from your business and various competitors to help you determine what to expect.
After you review this data, adjust your inventory buying schedule to reflect your business’s needs.
Turn to an Expert to Combat Inflation and a Looming Recession
Being prepared and informed will help your business continue to thrive with rising inflation and a looming recession, but creating a plan to combat them is not an easy task.
As a business owner, you already have plenty on your plate, so it’s understandable that recession preparation sounds daunting.
However, we are here to help! Contact Pasquesi Partners today to learn how we can position your business for growth even during economic downturns.