Ingram’s February 2023

SMALL BUSINESS ADVISER FINANCIAL ADVISER

by Steve Johnson

Playing Defense Before a Downturn

A checklist to prepare should the economy go south in 2023.

back on products or services that fail to gen erate solid profits for your company. Understand Your Receivables. During an economic downturn, your customers may pay more slowly. That could lead to less cash flow for your business. Evaluate your clients and customers now to see what their payment habits are like. When possible, shorten pay cycles and negotiate contracts. For example, instead of having larger payments every 90 days from reliable cus tomers, think about smaller amounts ev ery 30 days. Rather than getting a $10,000 payment once a quarter from a high-pay ing customer, why not convert it to $3,100 a month? Your customer will not only appreciate the discount, but you’ll receive monthly payments rather than quarterly. Manage Your Profits Wisely. Nor mally, you would reinvest some profits or share profits with investors. Econom ic downturns signal a time to save rather than spend as much as you usually would. Rather than pay out more to shareholders or invest in tools, think about saving more money when cash flow becomes tighter. Get Creative With Debt Financing. There are way more opportunities for debt financing beyond traditional business loans. Step one when examining your debts is to figure out if you can pay off some debt soon to reduce your monthly expenses. Step two would be to reach out to your current lend ers to negotiate more favorable terms. Just like your business, lenders would rather have smaller payments than none at all. There are other forms of debt financ ing available, such as angel investors, going public with an IPO, purchase or der financing, bridge financing, invoice financing, and microloans. Strengthen Your Existing Employees. It’s easier (and cheaper) to retain current em ployees vs. hiring new ones. Upskilling your current employees represents a relevant way to diversify who you already have to make them more well-rounded. They can also step in to fill voids left by departing employees. For instance, it might be less expensive to offer a raise for high performers compared to retaining a particular specialist with a singu lar skill set. Plus, diversifying your employees’ skills makes them more valuable to your team in the long run by reducing the need to hire someone new until you absolutely have to.

The global economic forecast for 2023 talks about slowed growth at best and a recession at worst. Even with 2.6 percent growth in the U.S. GDP for Q3 2022, economists still believe slow er growth is on the way, as the stock market continues to fluctuate between big weekly losses followed by huge gains. The Journal of Accountancy reported in early June 2022 that most finance leaders in the United States see a recession risk in 2023. How is your business preparing? Have you already scaled back plans? Are you freezing hiring? Have you shored up your supply chain? How are you saving on costs? Take a look at some tips for business planning for an economic downturn or a possible recession predicted for 2023. Analyze Your Cash Flow More Often. Normally, you would look at your cash flow weekly or monthly. When an economic downturn is forecast, consider examining your cash flow daily. Your accounting and financial software can help with this by set ting up daily reports sent to your inbox. Some of the strongest analytical tools can predict your cash flow a month in advance. If you already know of some seasonal fluctuations or econom ic indicators that may indicate a slowdown, you can anticipate a cash flow quarterly, semi-annually, and a year ahead. Diversify Your Supply Chain With Procurement Software. If you’re a procurement-heavy company, think about merging your pro curement and supply chain platform with accounting and finance. There are plenty of platforms that will gather data from all aspects of your oper ations to give you a big picture of finances as they relate to procurement. Then, your procurement team can better manage your supply chain. These experts can identify possible waste, suppliers who have raised prices, and find more diversified vendors to save you money. Don’t be afraid to negotiate with current suppliers. If they can’t budge to fit your needs, your procurement team can look for other opportunities. Yes, the investment in the right procurement platform now can cost more money upfront. However, the longer you use it, the more you can identify savings with a more efficient and diversi fied supply chain. The right procurement platform might also save money on labor costs in that department. Examine Your Costs. Inflation is at a 40-year high, and it’s probably not going back down (because prices rarely go down). Where can you cut your expenses without cutting your main busi ness operations? Can you use automation to reduce labor costs? Will you freeze hiring? What about raising prices? Remember, you can realize tax benefits by investing in automa tion tools and equipment as well as by hiring people for your team. Striking a balance between tax incentives and spending can help you save money on taxes, and you can decide how to use the savings. Strengthen Your Recurring Revenue for Stable Profits. Recur ring revenue gives your company a strong base to grow. During eco nomic slowdowns, stabilizing your recurring revenue becomes a lifeline that can save your business. Protect your most robust revenue channels as much as possible. Identify what segments of your revenue generate the most profits. Then optimize your business model through pricing structures, product improvements or cuts, and services to clients to cut

Steve Johnson is a partner at The Whitlock Company. P | 913.671.8600 E | sjohnson@ whitlockco.com

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February 2023

Ingrams.com