As a business owner, it’s important to grasp the impact a recession may have on your business. As we move through unknown financial challenges, there are several things to consider. Below is a list of items you should be aware of that will help you make the best management decisions when preparing your business for a recession.
If a recession is on the horizon, budgeting plays an important role on many fronts. Questions to ask yourself:
- What impact will the recession have on each industry and business?
- Do budgets need to be adjusted? Not only for remainder of the current year but the following year as well.
Month End Close Process
Whether a recession is looming or not, it is always imperative to know how your business is doing in real time. When navigating your business during economic uncertainties, managing your numbers plays an extremely important role in understanding your financial situation. Be certain to have a process in place to close your books each month. Don’t procrastinate. It is better to be proactive and have an accurate understanding of how your business is performing.
Cash Flow Management
In order to have a better understanding of your working capital, know your customers, speak with your customers and understand their cash flow. Make certain you “listen” to your customers or clients about their challenges. Having a firm understanding of their situation will help you plan accordingly.
In business, it is critical to maintain a solid banking relationship in good times and in times of anticipated economic uncertainty. If you do not already have a solid banking relationship, speak with your lending institution now about credit availability. It is wise to request increases in credit early because it may take some time to process when a recession is declared. Don’t wait for an emergency, take action in advance and be prepared.
If your business is in distress and you are thinking about filing for bankruptcy, consult with a bankruptcy attorney and a CPA who specializes in tax strategies. A bankruptcy attorney will help you understand the differences between filing Chapter 7 or Chapter 11, as well as provide you with guidance for paying secured vs. unsecured creditors. A CPA will be able to provide guidance and strategies you can implement regarding tax obligations.
Are You Preparing Your Business for a Recession?
No one wants another recession and we cannot control the current situation. What we can do is prepare for the worst-case scenario and hope for the best. Please know we are available to help you make the best decisions for your specific situation.
Know your options and be prepared.
As always, should you have questions about this topic, or any other topics related to your personal or business situation, please contact us at any time.
DISCLAIMER: The WM Daily Update, WM Wednesday Wisdom, Newsletters, COVID-19 Business Resources, COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.