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How to Prepare a Small Business for a Recession

 

According to Vanguard, the likelihood of a U.S. recession in the next 12 months is at 25% and in the next 24 months at about 65%. This potential for an upcoming recession is nasty news for many small- to medium-sized businesses.

Small businesses are hit the hardest because they experience all the negatives that large businesses experience, yet they also have little to no economic cushioning to help them get by. If you’re a small business owner, we feel for you and want to help.

This Millennium Omaha will take you through 5 steps that will improve your business’s chances of surviving the next big recession.

Assess Your Business Insurance

Business insurance can protect businesses from a range of liabilities. To see if you are protected during a recession, examine your insurance’s business interruption policy. This policy protects business owners if they experience a loss of income as the result of a disaster.

But, is a recession technically a disaster? Some insurances say yes, while others say no. That’s why it’s important to dig into the details. Some questions to ask yourself include:

  • Am I protected during a recession?
  • If I am covered, how much?
  • If I am not covered, is there a way for me to get covered?

Secure Your Cash

Cash is king, and this is especially true during a recession. By securing cash, you are building that cushion for when times get financially rocky. Aim to reserve cash that’s equivalent to between 6-12 months of your business’s operating costs.

Establish Your Creditworthiness

It’s ideal to pay your creditors on time; it’s even better to pay off your debt as early as possible. Paying things early gives your business a favorable behavioral score. For those unfamiliar, a behavioral score is similar to a credit score except it’s used to assess the risk of existing customers. With a strong behavioral score, many doors open up. You have more power to push creditors for longer terms, discounted terms, and larger lines of credit if necessary.

Behavioral scores are influenced by a business’s recent accounting transactions and recent financial information, which includes repayment performance and any delinquencies. As such, it’s important to stay on track of all your payment due dates starting now. Pay early if possible so you have flexible options during a recession.