Worried About a Recession? Do These 5 Things Now

The economic downturn of the late 2000s left a lasting impact on many professionals and business owners, especially those who lost their jobs or were forced to shut down.

In the decade since, the economy has rebounded fantastically — we're currently in the largest period of uninterrupted economic growth in U.S. history. However, what goes up must come down (again): Financial experts predict the next recession will hit in 2020 or 2021, likely triggered by trade policy, a stock market correction or a geopolitical crisis.

While the next downturn may not be as severe as the Great Recession, entrepreneurs are understandably concerned about the effect a recession may have on their business. If you're worried about your financial future, follow this expert advice to shore up your business and its cash reserves while the economy is still booming.

Understand which areas of your business drive the most value right now

In the middle of a recession, you may find yourself forced to cut costs in smaller windows of time like days or weeks, instead of months or quarters, said Tim Raiswell, vice president of Gartner's finance practice. This may lead to hasty errors, many of which can be avoided if you start preparing now.

"Recessions are not the right time for executives to discover that it's hard for business management to quantify and analyze external drivers of performance," Raiswell told CO—. "Differentiate the value-driving portions of each business area from the areas where costs have not scaled intelligently or as expected."

Raiswell recommends using a "headwinds versus tailwinds," or "risks versus opportunities" framework to quantify both the factors hurting performance (e.g. competitor action, input price inflation, etc.) and the actions you will take to counteract the shortfall.

Pay off your debts as soon as possible (and don't take on any more)

Businesses often need to go into debt to finance their operations, whether it's by borrowing money or charging company expenses to a credit card. If you currently owe money for your business, make an aggressive plan to pay it off as soon as you reasonably can.

"If you hit a recession and you're maxed out on debt, you'll have limited access to cash and minimal investors," said Matt Wolf, head of advisory for Joorney Business Plans. "Free yourself from debt before a recession hits."

Then, avoid taking on any more unless you absolutely have to. Before you resort to debt, Linda Matthew, accredited financial counselor and owner of MoneyMindful Personal Finance Coaching, recommends evaluating your budget and seeing where you can cut costs.

"[Ask yourself], what can I do to get rid of some of my business and personal expenses to trim it down and get through this OK?" she added.

[Read: A Practical Guide to Funding Your Small Business with Business Loans and Beyond]

Set yourself up with access to capital now

If your business is thriving right now, it's the best time to get yourself access to flexible financial products, like a line of credit.

"You want to open your line of credit while you're in good shape," said Matthew. "It's much more difficult to do that if you're struggling a year or two from now."

Matthew also recommends setting up an emergency savings fund with three to six months' worth of expenses for your business, just like you would for your personal finances.

"Plan ahead by having a good cash balance," added Wolf. "Make sure you have a rainy day fund. If you have to access credit during a recession, make sure you have plenty available."

Explore recession-proof business models and opportunities

David Reiling, CEO of Sunrise Banks, noted that economic recessions impact specific companies and industries differently. He recommends paying attention to the leading indicators and key metrics for your particular business and industry, and also setting yourself up to explore other business opportunities.

"Focus all your efforts today on your products/services that are a need, rather than a luxury for your customer base," added Joorney CEO Benjamin Jarmon.

So what industries and products are "recession-proof?" Roshawnna Novellus, CEO of EnrichHER, suggests looking into the food and beverage sector, since "people will be eating no matter what the state of the economy is." She also recommends creating products that work in varying economic conditions.

"Do financial modeling to determine the mix necessary to ensure that you can make it through the cycles," said Novellus.

Pay attention to your numbers

The best thing you can do for your business, during good and bad economic periods, is have a thorough understanding of your financial numbers and projections. Matthew recommends creating a detailed plan of projected income and expenses at the beginning of each year.

"Run your numbers and give yourself a top-level bird's eye view," she said. "Even if you start with an estimate [that's] a little bit off, that's better than going into the year without a plan."

Reiling agreed, noting that business owners should always look to further develop, expand and diversify revenue sources, while remaining as efficient as possible through operations and expense management.

"Pay attention to your financial statements," said Reiling. "Emphasis needs to continue on revenues, but expenses need to be scrutinized, and reductions, while always difficult, need to happen for the benefit of the organization. Even during the Great Recession, well-managed companies of all sizes continued to survive and thrive by making changes and improving their companies."

[Read: How to Create a Cash Flow Statement to Keep Track of Your Business Finances]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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