Whether you believe we’re currently sliding into a recession, already in one or just shaking out the dead weight before accelerating back into another season of economic growth, it’s a good time for entrepreneurs to take stock of the macroeconomic landscape they’re operating in and assess how their businesses would fare in a variety of future scenarios. Some call it recession-proofing your business. I call it being prepared. After all, I was a Boy Scout.
Here are several things entrepreneurs can do to prepare their companies, their teams and themselves for potential market challenges ahead.
Contingency Planning
Pessimists worry about the future. Smart businesspeople plan for it. Since the future is unknown, planning for six, 12 or 24 months from now seems pointless on the surface. But contingency planning can be of great value as founders stare into the unknown, identify a range of potential economic scenarios they could face and run “what if?” scenarios to determine the best path forward for each. Scenarios to prepare for might include a significant drop in revenue, an accelerating rise in operating costs and/or tighter capital markets. By thinking ahead and devising initial actions plans for different threats (and opportunities), entrepreneurs and their ventures are better prepared to weather the storm and live to fight another day.
Be Metric Driven
While it’s natural for founders to lean on their gut instincts to make critical decisions at times, the use of objective metrics and measures can be of great value during times of economic upheaval. They take emotion out of the equation, which can run high during stressful economic times, and provide leadership with key data to help drive decision-making and possibly trigger a strategy change. Identify key indicators, such as sales cycle length or accounts receivable aging, that signal how your business is being impacted by outside forces and establish action points for each.
Preserve Cash
We all learned a valuable lesson during the recent pandemic that cash is king. But unlike that situation which saw PPP loans and other liquidity tools created to ease the pain, general economic slowdowns cause cash crunches for many businesses and they likely won’t trigger more federal and state relief to come to the rescue. Thus, it’s prudent to get ahead of the curve and build a larger-than-usual working capital cushion even if it means making difficult decisions today like delaying certain hires or establishing lines of credit before the storm hits.
I’m hopeful our economy will stabilize soon and we’ll return to a period of steady, economic growth. But there’s no debating the current headwinds we’re all facing. The wisest among us continue to look forward optimistically but with a keen eye on potential challenges.
— John Moore is a principal with Momenteum Strategies, an Upstate-based consulting firm specializing in helping communities and their economic development organizations build thriving, impactful innovation ecosystems.
