How Biz Owners Can Weather Economic Storm

Tennessean.com:

I continue to be somewhat concerned about the current slowdown and/or recession in the economy.

I remain very concerned about inflation. To get prepared for any economic downturn, it is best for business owners to think in terms of getting their financial statements in order.

First let’s look at the income statement item-by-item:

Revenues: Do not cut back on marketing efforts. Now more than ever you need to stay in the minds of your customers.

Expenses: Cut your overhead expenses. This will lower your break-even point and help buffer your profit margins if you are faced with sudden price increases from your suppliers or if a major customer suddenly is forced to cut or even cancel orders from you.

Now let’s turn to the balance sheet and all of its parts:

Cash: Improve your cash flow. Pay attention to accounts receivable. During difficult times your customers will begin to slow down payments to take care of their own financial strains. Stay aggressive on collections. Use carrots and use sticks to keep their payments coming in a timely basis.

Debt: In addition to building cash reserves, pay down debt as aggressively as you can.

There are two reasons for this. First, as inflation heats up interest rates may go up quite quickly. This will affect your new loans and all of your existing debt, such as lines of credit that have variable rates.

Second, banks will become much stricter when it comes to the covenants and performance requirements in your loans. If you miss these numbers, you probably will feel pressure from your bank to get in compliance.

Photo by OmirOnia.

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