How to recession-proof your business finances in 2023?
Small business owners are struggling to make sense of the current economic state in 2023, with reports on a looming recession floating around. Therefore, it is advisable to be ready to weather the upcoming storm. Just as evolution in animals dictates that only the fittest survive, in a recession it is generally survival of the smartest. Being ready for an impending 2023 recession can not only help your business survive but thrive.
What is recession?
Let’s understand first what recession is. A recession can be defined as a period of temporary economic decline during which trade and industrial activity are reduced, generally indicated by a fall in GDP in two successive quarters. It is accompanied by a significant rise in unemployment rate. This ultimately results in an increase in the price of goods and services. In a recession, consumer spending drops, leading to a reduction in economic activity— buying and selling.
That is why we are writing this article to go over some tips on how to recession-proof your business and prepare for an economic downturn. Build them into your business plan to build your business’ resilience. While some might consider the phrase “recession-proof your business” to be an over-statement, every business can improve its health by implementing these five steps.
1. Reduce expenses
Reconsider your expenses, cut cost on overhead expenses wherever possible, and try to pay your expenses of a month from the same month’s sales. Eliminate unnecessary expenses, including multiple subscriptions to associations offering overlapping services. It is important to renegotiate contracts with your suppliers and vendors. Review utility bills and telephone contracts, and shop for cheaper alternatives with more offerings. The competition is stiff out there in recession, so this is a great time to shop around.
2. Forecast & plan your inventory
Forecasting is a vital part of any company’s success strategy, regardless of the economic climate. If your business has a lot of inventory, it could be tying up valuable resources that could be used elsewhere. It may be wise to downsize less profitable and easily replaceable stock to maintain cash flow. However, careful consideration is needed as stockouts will lead to revenue loss and damage customer relations. It’s important to find a balance between generating cash and fulfilling orders. Order too much, and you could be faced with excess inventory that’s impossible to shift. Order too little, and you could be faced with stockouts. Whichever tactic you settle on, make sure to plan ahead, monitor the market, and do your research.
3. Nurture your customers
Your customers are likely as worried about a potential economic downturn as you are. A customer loyalty program is one way to reward your best customers and keep them coming back. Your program doesn’t have to be extravagant: Minor discounts and points-based rewards can add value in your customers’ eyes. Post-purchase customer follow-ups provide a way to connect with customers in an authentic and helpful way. These interactions also allow you to nip dissatisfaction in the bud by addressing problems before they arise.
4. Focus on Innovation
When you think of innovation in business, you might imagine tech startups. But innovation plays a significant role in the success of every small business. Making a small investment in new technology can have a major impact on your bottom line by saving you time or money—or both. There are several ways to automate your business operations, from using software to streamline your accounting and HR processes, to investing in automated manufacturing equipment. So, if you’re looking for ways to cut costs and improve your business efficiency, innovation & automation should be high on your list.
5. Take advantage of tax credits and deductions
Understanding which business expenses can be used as tax deductions (also known as “write-offs”) can have a huge impact on how much money your business will save during tax season so it’s worth researching to see what you could be eligible for. There are several tax credits and deductions available to businesses, so be sure to take advantage of them. You may be able to claim deductions for things like office equipment, vehicle expenses, travel expenses, and more. It may take some time to go through all the different options, but it will be worth it in the end when you see how much you can save.
To know what tax deductions you qualify for, we recommend that you consult a tax professional.
Take a close look at your business operations and see if there are any areas where you can streamline or simplify things. From freezing hiring and renegotiating contracts to outsourcing non-core services and leveraging technology, each strategy will help you build a more resilient business model and ensure long-term success.
Not sure where to start? Contact our accountants at DM Tax to brainstorm ways your company can minimize the adverse effects of an economic downturn. We’d be pleased to help.