Many U.S. businesses are still climbing out of the 2008 recession and there’s still the possibility that we could fall right back into one within the next couple of years. There’s significant uncertainty ahead of us as global economic growth remains subdued and the U.S. has yet to resolve key tax and financial matters related to the fiscal cliff. No matter what happens in the next couple of years, all entrepreneurs need to be prepared.
Review your financial model
You may not be a financial professional, but you still need to understand how changes to company sales and expenses will impact the bottom line. Work with your accountant or hire a financial consultant to help you understand what the impact will be from varying degrees of recession. Obviously, businesses with high fixed costs are at greatest risk during a recession, but each business model needs to be monitored for a five, 10, 15 and 20 percent decrease in sales.
By performing the analysis now, you’ll have a game plan for what needs to be done to maintain profitability and to sustain the business during a recession. It may be that a 10 percent loss of sales means that you need to lay off or demote X number of employees and close X number of locations. These decisions will need to be made swiftly and ahead of the storm, which is why you should create a plan now. (more…)