The signals are mixed.
Job growth remains strong, and freight flows where decline is a leading indicator of recession. But gas prices are at all-time highs. There is a war in Europe for the first time in more than 50 years. And inflation is strong and persistent for the first time in 40 years. Rising rates are cooling the housing market. The fact remains that eight of the last nine times the Federal Reserve raised rates to combat inflation, it resulted in a recession.
So what can a prudent business owner do now, just in case?
There are several different ways to do this, depending on circumstances.
Ratchet down capital spending.
First, place large capital or other expenses on hold unless necessary. Unless the expenditure is replacing other cost centers—say, a robot replacing labor—now is a good time to play wait-and-see, especially given inflation and supply chain issues. It’s a good time to avoid taking on the new debt that often accompanies big purchases. Reducing debt, in general, should be part of any pre-recession strategy.
Open channels of communication with your landlord.
Maintain a good relationship with your landlord. During a recession, empty space is difficult to fill and a carrying cost burden. For landlords, having a tenant at a reduced rate is better than no tenant at all. A strong relationship can lead to an easier renegotiation of lease terms.
Also, if your teams can work from anywhere, it may be time to consider a hybrid model where many people work remotely and only come together for collaboration and team building. Certainly, the pandemic has made this easier, and it can significantly reduce overhead.
Barter for cash preservation.
Another great way to conserve cash is to barter. Take stock of inventory and excess capacity to determine what may be of value to other businesses in your network and reach out with ideas. Often, however, it’s difficult to reach a one-to-one agreement where both parties feel they’re getting a fair shake. That’s when it’s time to consider a barter network.
A barter network allows participants to accumulate credit whenever they provide a good or service. This credit can then be used to acquire other goods and services from businesses participating in the network.
Another benefit of a barter network is just that—the network. During recessions, outside peripheral tasks or jobs that are not associated with direct revenue are often first to go on the chopping block. By participating in the network, a business is continually in front of new customers and potential long-term clients.
You can outsource some of your necessary business functions such as accounting, human resources or marketing and use companies that are in a barter network. Getting into such a network before a full-on recession will help you preserve that cash in the long run.
A Stellar Banking Relationship
Your relationship with your bank is a critical component of your business, whether you know it or not. Ensuring that you have a good relationship now will save you agony in the future. And if you do not have a good relationship with a banking partner, then now is the time to go establish one or find a new banking partner. And while you are at it, apply for a line of credit just in case you need it down the road. The time to pursue a credit line is when your business is financially sound, not when it is heading downward or during a recession.
The common thread to all these strategies is timeliness. The time is now. We may be headed toward a recession—or not. These strategies will prepare you, just in case.
Originally published by Forbes Business Council: July 27, 2022.
