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Is a Recession Coming?

Five Ways to Prepare Your Business

Much has been said about the state of the United States’ economy and its long-term forecast. Is it bullish or bearish? Trade wars. Inverted yield curves. Despite record employment, there are signs that the U.S. economy is weakening and that a market correction—perhaps not at the recession level—is nigh. While the Great Recession may have occurred a decade ago, many entrepreneurs still harbor painful memories and are understandably cautious about their spending. 

Though economic downturns are part of the business cycle, there are steps leaders can take now to prepare their businesses to weather a storm and emerge stronger.

1. Invest Now by Diversifying Your Offerings 

The crash put many plans on hold, but a strategy now would be to dust off those expansion plans. Be careful, though. Every successful business owner knows that they need to evaluate their revenue and cash-flow projections to make sure their future earnings warrant such a move. Also, growth requires personnel and facilities sufficient to sustain increased demand. Consequently, now’s a great time for your business to invest in better equipment, facility upgrades, and specialized training—like AFSA’s ITM Inspector Development Program. 

The steady workflow provided by adding an inspection, testing, and maintenance division kept many contractors afloat during the last recession, because when new construction halted, existing systems still needed to be inspected, tested, and maintained. Elevate your business by preparing your employees for NICET Level II in as little as 19 months! 

“These professionals are the primary face of your company and have ten times or more the interaction with your customers than anyone else,” says Jason Williams, CET, AFSA’s manager of ITM technical training and lead instructor of the ITM program. “They can directly affect your sales, retention, and liability of your service. AFSA’s ITM program can help groom your professionals with real-world training, information, and guidance.”

AFSA ITM program graduates achieved a 90 percent pass rate on NICET Level I & II Inspection and Testing exams, which well exceeds the 65 percent national average. More information can be found at 

2. Shore Up Your Safety Net

When times are good, it is best to pay down debts starting with those with the highest interest rate—like credit cards, and if possible, to put excess funds into reserves. That said, business owners need to set realistic financial goals. Goals that feel like a bit of a stretch are usually the ones that keep us fired up and motivated. Track your goal’s progress and then figure out how you can achieve them within a realistic time frame. Consider how your business might:

• Maximize cash flow by narrowing the timing between sales and outlays for costs you incur in advance, such as inventory.

• Reduce your cash conversion cycle days (time it takes for money to come in from customers against the days when your supplier payments are due).

• Collect from customers faster. Consider offering discounts for paying promptly or require deposits from customers.

According to the McKinsey Institute, companies that were able to survive the last recession could finance internally through “high cash balances and a low dividend payout.” However, there is one way to keep a cash reserve and grow: secure some emergency financing. Businesses can combine a flexible financing product (see tip #3) with a smaller cash reserve. This approach gives owners liquidity while allowing them to use more cash. Keep two things in mind: 1) use the line only for emergencies and 2) during severe recessions, lenders can cancel lines of credit.

3. Build Your Credit Now

Having financing during a recession can help your business survive—and grow. However, getting financing during a recession can be difficult. Owners should explore bank loans, lines of credit, or other kinds of financing from different sources so they can find the most competitive terms available before they need them. That way you can have funds at your fingertips exactly when-—or if—you need it. Acquiring a business line of credit also allows entrepreneurs to build credit and their credit score—which is never a bad thing during downtimes.

4. Maintain­and GrowYour Customer Base

Business owners will identify the strengths that have enabled your success to date, and those that will be important in the future. Identify your best or highest-margin customers and understand what you are doing right for them. Develop a game plan, in the event of a downturn, to protect and build on the strengths that have allowed you to be indispensable to them. In the event of a dip in business, rather than cutting costs across the board, be ready to shift resources to retain these high-margin customers.

According to a Business Development Bank of Canada (BDC) study, nearly one in six well-established businesses had encountered financial difficulty because of losing a single client. Marketing is one of the top line items companies consider decreasing during challenging economic times. It’s also the one most companies regret cutting when times are lean as it costs them market share in the long run. If you can’t afford an extensive marketing campaign, there are still lots of digital, low-cost alternatives to turn to such as Google AdWords, email, blogging, and social media, specifically LinkedIn.

5. Retain Top Talent

In the Great Recession, construction was one of the hardest-hit industries with 2.3 million jobs lost, according to the U.S Bureau of Labor Statistics. Linked to the housing crash that started the recession, those jobs came back slowly. Many of the top skilled workers had long since moved on to another industry by the time construction came back to life. Employers win top talent when they can connect the company’s mission and values to top talent’s desire to make a difference in the world. More specifically employers must answer what the company does, why they do it, and how individuals fit in. In the fire sprinkler industry, we are literally in the business of saving lives. It doesn’t get much better than that!

Final Thoughts

By the time anyone declares we’re in a recession, it’s too late to prepare for one. That’s one reason it’s good to get ready now. Before a recession becomes official, there are warning signs. Actions to take: 

• Think long-term: The Boy Scouts’ famous motto “Be prepared” has many applications. Preparation can take much of the unknown out of the equation. Give leaders tools for training, productivity, communication, and mitigation long before they need it. 

• Conduct regular checkups: Instead of going full “crisis mode” once a downtown occurs, access the health of your business. Use data to guide how you build efficient teams, foster new leadership, and support your employees’ well-being. Those that are proactive—rather than reactive—to get better results.

Business owners who understand that recessions are normal and should be expected can prepare for them. Those who plan for all possible outcomes are best poised to survive.

ABOUT THE AUTHOR: Nicole Duvall is the director of communications & social media at the American Fire Sprinkler Association (AFSA) where she focuses on publishing the Association’s official communications. She also assists with the promotion of events and membership. Duvall currently serves as the AFSA staff liaison to the Public Education & Awareness Committee; Manufacturers & Suppliers Council; and the NextGen Initiative. She is also a member of the Home Fire Sprinkler Coalition Board of Directors. Duvall is a graduate from Texas Christian University in Fort Worth, Texas, with a degree in Journalism and is currently an MBA student at The College of William & Mary in Williamsburg, Virginia.

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