The experts say that in the first quarter of 2023 there is a 47.5% chance that the US will drop into a state of recession. OUCH!!! That is not a percentage that any entrepreneur wants to see combined with the word RECESSION.
However, if you have been watching what has been going on over the last couple of years, it shouldn't come as a surprise. So, how can you prepare for a recession in your business and in your personal finances also?
Below I am going to share my top tips for preparing for the probability of a recession, but before I do, my best advice is DON'T FREAK OUT! That can lead to poor financial decisions that can hurt you more than help you.
From a business standpoint, reconsider your products and services. Are they going to be considered a luxury in a recession? If so, look at how you can pivot to offer something that is maybe a smaller ticket item or that won't be viewed as a luxury so you aren't the first thing people will cut when they are tightening the proverbial belt.
Increase efficiency in your business. Work smarter, not harder. During a recession, historically, entrepreneurs work twice as hard thinking that is the only way to come out the other side. However, start looking now at what you can do to still deliver but maybe do so with fewer man-hours in play.
Do an audit of your spending. This can be done both in your business and your household. Watch for expenses that are not necessary or are not benefiting you in any way, and those are the ones to cut out now so you have some extra money to add to your emergency fund. ( I will get into that in a moment...) Review who and why you are spending money with. For example, if you have an office cleaner, is this something a family member can do so you can pay them and keep funds in the family rather than paying a vendor for it?
Review your pricing. Do you need to adjust your pricing to make it through a recession? This goes along with looking at what you are offering. Is there a way you can offer more, without trading hours for dollars, and maybe slightly increase your pricing now to prepare for a recession?
If you have employees, sadly it may be time to audit your staff. Is everyone meeting their job expectations and is everyone necessary to your business? This is a hard one because as a recession is looming, the last thing we want to do is lay someone off knowing they may struggle to find a new job. However, sometimes this is necessary if you want to come out the other side with your business still alive.
Bulk up your emergency fund as much as you can. With the possibility of expenses continuing to rise and the likelihood of income not increasing, adding more to your business and personal emergency funds is going to be what can help you get through a recession with a little bit less financial stress.
Pay down any debt you can so you have fewer regular monthly payments. This does need to be balanced with number 7 above though. Don't pay everything off at the risk of not having an emergency fund to lean back on.
Start figuring out how you may be able to create an additional stream of income for your household. This may help offset some of the financial stress that a recession is sure to bring to the majority of households.
Create a budget NOW and stick to it. A budget is the best way to identify overspending or where you may be able to cut things out so you can save more.
The fact of our economy is that a recession is more than likely, it is just a matter of when at this point. It is never too early to prepare your business and your household for the potential situations that come along with this. If you would like to get your finances and budget ready for a recession, I encourage you to schedule a no-obligation discovery call to see if I can be of assistance to you in that way!