How recession-proof is your business? With all the tech layoffs making news headlines and rising interest rates, you may be worried about your customer base shrinking and your profits dwindling while your expenses skyrocket. The good news is that there are steps you can take now to help recession-proof your business in 2023.
1. Conduct an Analysis of Your Business’s Cash Flow
One of the biggest problems, when a nation or the world enters a recession, is maintaining business cash flow. To get started, take a long hard look at your expenses and your income as well as your business debts and repayment options and create a detailed cash flow statement. Next, create a rolling cash flow forecast for the next 12 to 18 months. As you complete a month, remove it from the forecast and add the next month onto your forecast calendar. It’s also a good idea to maximize your available cash on hand by evaluating all the available sources of capital for your business before you need them. This could also mean taking out preemptive loans at favorable rates now and hanging onto that money. Ideally, you’ll want to have between 12 and 18 months of cash on hand to cover your operating expenses at all times in order to safely weather a recession.
2. Compile Tiered Forecasts
Create tiered forecasts that highlight what would happen to your business if your income dropped by 10, 20 or even 30+ percent. During recessions, many customers scale back the size of their orders and the frequency in which they place those orders, which can impact your bottom line. Significantly decreased income could force you to make drastic cuts to your expenses and your workforce, which could impact your ability to increase the scale of your operations once the recession eases. By creating tiered forecasts, you can make strategic cuts now. To aid you in the process, you may want to consider these three questions.
- How much do I need to sell on a monthly basis in order to pay all my business expenses and payroll?
- Where do I need to continue spending in order to gain a larger market share during and after the recession?
- What other spending can I scale back without negatively affecting productivity?
3. Consider Changes in Supply and Demand
Next, consider how a recession will change the buying habits of your customers. Do you have products or services that would be considered luxuries and less likely to be purchased than other products? What would happen if a large segment of your customer base suddenly switched from your higher-end products to your lower-end products? Performing this type of customer behavior analysis can help you better position certain products in front of your customer base in order to keep sales steady. To help you with this forecast, you may want to consider using your ERP software to predict customer behavior during a recession.
4. Evaluate Your Supply Chain
Where do you source your products or the raw materials to make your products? Before a recession strikes, it’s a good idea to list all your suppliers and what products or components you source from those suppliers. Pay particular attention to products and materials you can only get from one supplier. If you need hard-to-find components, can you place a larger order to help you get through any supply chain disruptions, or do you need to spend time looking for more suppliers of certain products? Having ERP software that allows you to maintain a detailed vendor list can help you mitigate supply chain issues.
5. Examine How You Manage Your Inventory
How much inventory do you need during economic growth and how much inventory have you historically needed during times of economic downturn? To prepare for a recession, you’ll need to reevaluate your inventory and product lines. To help with this process, it’s a good idea to evaluate your product lines to determine which products you’re most likely to sell during a recession and which are less likely to sell. This will help you determine which products to keep on hand and which products you may want to reduce in your inventory. Your ERP inventory management software can help you determine which products are selling and which products have experienced a decrease in demand.
6. Automate Manual Tasks and Retrain Your Employees for Higher Level Tasks
Take the time to find and use software to automate certain tasks. One of the easiest places to automate is within HR. You can implement software that allows employees to update or change their benefits and request time off or family leave. You can automate customer service with AI chatbots, and you may even be able to automate some of your warehouse processes. Once you’ve freed up employees by utilizing automation, it’s time to reskill and upskill them so that they can handle higher-level tasks, like workflow optimization and process streamlining.
7. Use Enterprise Resource Software (ERP) to Plan for Certain Scenarios
ERP software, like NetSuite, can help you plan for certain scenarios, like increases and decreases in sales and inventory. It can help quickly determine your company’s cash position and recommend certain solutions for improving cash flow. It can help with budgeting, and it can identify accounts that are most likely to result in canceled orders or delayed payments so that you can be proactive in helping customers pay for their purchases. You can also use it to plan for certain scenarios, like fewer customers, smaller orders, and increased expenses due to inflation.
Learn more in How ERP Software Can Help Recession-Proof Your Business.
MIBAR Can Help
By planning for problems now, you are being proactive in helping your business stay afloat and possibly even grow during the next recession. If you’re worried about the current state of the economy, don’t wait until it’s too late. Legacy ERP may be costing you more. To learn more about our ERP solutions and to schedule a free consultation, contact our team at MIBAR today.