Recession Ready: Managing a Business During Uncertain Times

No one looks forward to a recession, but small business owners in particular can feel the impact of a downturn more acutely. With more limited cash reserves than large companies, small businesses don’t always have a cushion to ride out tough economic times. Yet despite the fact that many economists believe a recession is imminent, many small business owners remain optimistic about the future of their companies. 

The Fall 2019 Capital One Small Business Growth Index found that less than half (43%) of small business owners are concerned a recession would impact the success of their company in the next 12 months. What’s more, 87% of respondents predict the financial position of their businesses will be the same or better six months from now, putting them on firm footing to weather any upcoming challenges. 

At the same time, business owners like Christine Andrukonis, founder and senior partner at Notion Consulting, aren’t waiting for a recession to hit to start preparing for one. And she’s not alone. Three quarters (74%) of business owners say they feel prepared for a recession from a cash flow perspective.

“There has been talk of a recession for a while, and lessons from the past tell us that economic growth ebbs and flows, so we are working hard to stay connected with what is happening in the marketplace and building a resilient firm that can be nimble and dynamic if we find ourselves in a recession in the coming months,” she said. 

The New York Federal Reserve Bank puts the current odds of a recession in the next year at about one in three, but not even economists have a crystal ball. So what are four things business owners can do now to plan ahead for an eventual slowdown? 

Get a handle on your cash flow

Effective cash flow management is key for running a company successfully, especially in times of economic uncertainty. Managing your cash flow starts by having a full picture of your business finances. Start by looking at your revenue and expenses in the past, present and future, and leverage a cash flow management tool to understand how much money is coming in and out every month. This process will help highlight any potential shortfalls and allow you to get ahead of issues that might arise in the future. Business owners should also be aware of any outstanding invoices they have, or money that they are owed, and making any changes to their accounts receivable process to ensure prompt payment from their customers and vendors. 

Hire strategically

Hiring might feel scary with a potential recession on the horizon, but it may make sense to add a few strategic people to your team now to prepare for an eventual downturn. Look for employees who will help fuel business growth, such as sales staff, part-time seasonal workers, or other strategic hires.

Loyal customers are more likely to stick with you through the good times and bad, and they may even offer opportunities to grow your business through up-selling or referrals. Now is the time to set up meetings with your biggest clients, find those value-add moments and have your employees focus on delivering top-notch customer service.

Building a relationship with your banker or accountant can go a long way in keeping your business financially fit, and these relationships can be crucial during tough times. For example, bankers can help maintain a forecast of expected cash inflows and outflows and help you identify potential issues. Running your business through a recession is hard enough, so having a partner and advisor help you manage your finances could help alleviate some stress.

Dr. Eric Suan, owner of the Retina Care Center, is mentally preparing for a recession even if he doesn’t think his business will see much of an impact. "I do think that a recession is coming. Our industry is somewhat recession proof -- there will always be a demand for our care independent of the economy. While there's little that a recession will do to directly impact our business, we do know that it could have a major impact on our staff and patients," he shared.

 “It is an interesting point in time for business owners; while the economy has been relatively strong and they remain optimistic, they are also concerned about a potential recession and uncertain about the impact of the 2020 presidential election,” said Brad Jiulianti, head of small business card, Capital One.

Preparing for something unpleasant like a recession is never fun. But smart small business owners have no intention of being sitting ducks. They’re shoring up finances, hiring, and strengthening company culture now to face any headwinds in the strongest possible position.

For more information on how entrepreneurs believe a potential recession could impact their businesses, please see Capital One's Small Business Growth Index for comprehensive data and analysis.