How to Navigate a Looming Recession as a Founder Here are five key strategies that founders can use to navigate a recession from the onset.
By Judah Longgrear Edited by Chelsea Brown
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As a founder, you must know that a recession can come whether you expect it or not. It is essential to prepare yourself beforehand to have a cushioning effect when it comes. Waiting until it is full-blown before trying to figure out how to survive the recession may be detrimental to both your wellness and the survival of your business.
To say the least, navigating a looming recession as a founder can be challenging. With careful planning and strategic actions, you can position your business for resilience and even growth during tough economic times. When recession strikes, it will be tough to continue operations, but that doesn't necessarily mean that the company will be headed for doom.
This article highlights five of the best tactics that founders can use to navigate a recession from the onset.
Related: Worried About a Recession? Do This to Prepare Your Company.
1. Assess your business and financial health
Often, founders have a hard time separating themselves from their business. This can cause your finances to get muddled up. The first thing you should do as a founder, recession or not, is to separate your finances from those of your business and assess them independently.
To begin, you need to review financial statements and projections on both personal and business accounts. This is important because a poor condition in one will affect the stability of the other.
As a founder trying to navigate a looming recession, you should thoroughly analyze your cash flow, profit and loss and balance sheet. You have to ensure that you won't be leaning heavily on your business for survival and vice versa.
Also, you need to analyze your business's financial health. Done properly, your analysis can reveal risks and weaknesses that could threaten your chances of survival when the economy comes crashing. Some of the red flags to look out for are:
Overdependence on specific customers or markets: You should try getting more customers or diversifying your market. A good rule of thumb is to ensure that your biggest client brings lower than 10% of your total revenue.
High debt levels: During a recession, people don't generally have much money to spare. So, it might sting when you're not closing enough deals to offset loans.
Inefficient operations: It's good business to achieve good results with minimal resources. So, if you're spending more than necessary on operations, you might want to review your processes.
2. Develop a contingency plan
Developing a contingency plan is crucial to navigating a recession as a founder. It helps you prepare for potential challenges and uncertainties, enabling your business to weather the storm and come out of the recession in one piece.
Although it's unlikely you will predict how things will play out, you can start by estimating how bad things can get. It's not meant to discourage you. Rather, you should use your estimation of the worst-case scenario to develop a plan to avoid it.
No matter what your predictions of the future are, it's good practice to build a cash reserve. One way to do this is by reducing non-essential expenses and negotiating better deals with suppliers and vendors. You might also want to consider moving your workforce to a remote environment to save on property rental.
While having a robust cash reserve will increase your business's chances of survival, you need to also make sure that your business cash flow doesn't take a big hit.
Related: 9 Smart Ways to Recession-Proof Your Business (Fast)
3. Monitor and adjust your strategy
Regularly review and update your financial forecasts to align with changing market conditions.
Track key performance indicators (KPIs) relevant to your business, such as sales metrics, profitability ratios and customer acquisition and retention rates.
Gather feedback from customers and employees to identify areas for improvement and understand changing needs. Be agile and ready to pivot your strategy, if necessary, based on the evolving economic landscape.
Related: How to Talk About Company Finances with Your Team
4. Seek support and expert advice
As you plan your way out of the recession, you must be intentional about your network. Join business associations or networking groups to access resources, knowledge and support. Engage with mentors or industry peers who have experience navigating economic downturns.
You can also consult with financial advisors or consultants who can guide you through financial planning and risk management. The government may also create palliative measures that founders can explore during the recession.
5. Maintain a positive mindset
The mindset of the founder will greatly affect how everyone in the company reacts during difficult times. This is why staying calm at all times is one of the qualities that successful entrepreneurs share.
Be sure to cultivate a calm spirit and positive mindset. It's important to start building this quality early — you don't need to wait until there's an economic downturn before you try to exercise calmness and positivity. At the time, it might be difficult for you to even realize that you're being reactive.
Related: 3 Key Strategies That Helped My Business Grow During a Recession
For your business to survive, you have to meticulously and realistically evaluate your chances. You should begin by drawing a vivid line between your business and personal finances. With a clear view of your business's financial state and projections, you can make contingency plans and keep track of your survival and growth strategies.
Importantly, successful entrepreneurs have a solid network of supporters and advisors. It will be smart to connect with them and exchange ideas that might be helpful for navigating a recession. And keep in mind that a positive mindset is worth a million tons of gold. Other entrepreneurs want to associate with people who make them believe that everything is figure-out-able.
