QUESTION: The economy is improving but I remember the devastation caused by the 2009 economic meltdown. How can one best position their business to withstand another business recession?
ANSWER: You are wise to not become complacent with the current business environment. It’s easy to assume that the economy will keep rolling along with GDP growing, salaries increasing and unemployment at historically low levels. These trends run in cycles and most economists agree that we are in the late stages of the current cycle. The following are six suggestions to help you prepare for the next downturn:
- Create an emergency fund – If you don’t have one, begin now to set aside a certain amount of money each month. If you are self-employed you should set a goal equal to one year’s operating expenses.
- Pay off debt – Focus first on paying off debt with the highest rate of interest. These would usually include credit card debt. Money saved from not having to pay interest can be applied to your emergency fund.
- Arrange for a line of credit – Contact your local bank and apply for a line of credit to be used only if or when your emergency fund runs dry. It will cost you nothing until you draw upon the line and interest only applies to the amount you draw.
- Try to reduce expenses – Begin by identifying the big ticket items. Attempt to renegotiate agreements with your suppliers to include more generous payment terms. Resist the urge to overstock, buying only the minimum you need to accommodate those high demand items.
- Take stock of your personal lifestyle – While we are certainly entitled to the fruits of our labor, there are some things we enjoy that we can forgo in order to create that fund for emergencies. Maybe drive the same car for several more years than normal and pass on the two-week vacation trip this year?
- Develop a contingency plan – Start now to think about what you should do in the event you lose business as a result of a recession. Your customers will also be affected by an economic downturn. This could include developing a strategic marketing plan to offer additional services.
A recession can actually be an opportunity for some businesses. Examples can include auto and home repair and maintenance. Also, bargain or discount stores. When times are tough and money is tight, people will hang on to and repair what they have rather than buy something new.
So, prepare now, because as the old saying goes “an ounce of prevention is better than a pound of cure.”
Gray Poehler is a volunteer with SCORE Naples and can be reached at www.Gray.Poehler@scorevolunteer.org. Business counseling on this and other business matters is available, without charge, from the Naples Chapter of SCORE. Call (239) 430-0081 or visit https://naples.score.org/mentors .The SCORE business office is located at 900 Goodlette Road North, in the Fifth Third branch bank building. Office hours are 9 a.m. to noon, Monday through Friday.