What is a Recession?
The National Bureau of Economic Research (NBER) defines a recession as, “a significant decline in economic activity that is spread across the economy and lasts more than a few months”. Unfortunately, economists have been warning of the potential for a recession in the not-so-distant future.
While it’s impossible to know exactly when the next formal recession will hit, rising interest rates and soaring inflation have many U.S. small business owners feeling jittery. In fact, according to a recent survey, 8 in 10 small business owners expect a recession to occur this year. And with the Federal Reserve expected to aggressively increase rates over the next year, respondents of another survey (economists, fund managers and strategists) believe the process will end in a recession.
So, what does this mean for your business and how can you prepare now to make sure you don’t fall behind the 8 ball? Here are 3 steps to take before a recession hits:
- Secure Capital Now Before You Need It
In a recession, cash is king. That’s why the ideal time to secure funding is prior to needing it. One of the best ways to be prepared for the unknown is to plan ahead and obtain a business line of credit. A line of credit is very similar to a business credit card. You have access to capital at your fingertips and can draw any amount that you need up to your approval limit. Some of the major benefits are that you only pay interest on what you draw, and you can pay it back early without penalty.
A line of credit can help you gain access to funds to:
- fill your shelves
- keep your business open during tough times like a recession
- handle gaps in accounts receivable
- make payroll
- pay operating costs
- manage surprise expenses
- and more.
- Analyze Your Invoicing Procedures
In an economic downturn, your clients may begin to feel the strain and start paying their invoices slower. To give yourself some cushion, take time now to ensure that your invoices have clearly laid out terms for late fees and incentives for early payment. Also, it’s a good idea to get in the habit of letting your customers know that an invoice is coming before you send it by reaching out with a phone call or an email. Begin tightening up your invoicing procedures now so that you can easily stay on top of things in the event of a recession.
Some business in the construction, manufacturing, trucking, healthcare, and wholesale industries frequently struggle with longer payment terms and often have cash tied up in outstanding invoices from clients. If your business finds itself at the mercy of slow paying customers or could use some help with accounts receivable, invoice financing can help. Invoice financing is a type of accounts receivable funding where a company sells their unpaid invoices in return for an immediate cash advance. Typically, a company is advanced between 80-90% of the total invoice upfront and the remaining percentage is paid minus a small fee once the total invoice is paid in full.
- Get Your Finances in Order
Before a recession hits, take the time to get your finances in order. Keeping your assets organized now and gaining a clear understanding of your expenses will help you in the event of economic downturn. Spend time now to:
- Review your expenses and cut back wherever possible
- Consolidate debt
- Reexamine your budget
- Try to negotiate better rates from your vendors or suppliers
- Cancel any unnecessary subscriptions, maintenance contracts, etc.
- Renegotiate your lease
- Look at projected income and identify areas where you can improve efficiency.
Need assistance with getting your finances in order? We can help you scope out a 360 view of your finances, generate projections, clean up your books, boost your profitability, and position your business for better-and-better funding options.
The Best Defense is a Good Offense!
Be prepared for whatever is in store for tomorrow by applying for business funding today. Call us at 844-466-6394 or apply now.
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