In times of economic uncertainty, it's essential to have a clear understanding of your financial situation and to have a plan in place to weather any storms that may come your way. Here are some ways that can help you to recession-proof your small business.
Review your financial statements regularly
One of the most important ways that you can recession-proof your small business is by reviewing your financial statements regularly. This includes your balance sheet, income statement, and cash flow statement. By doing this, you can get a clear understanding of your financial situation at any given time and identify any potential weaknesses or areas of concern.
2. Develop a budget
A budget is an essential tool for any business, but it becomes even more important in times of economic uncertainty. Developing a budget that takes into account your expected income and expenses helps you plan for any potential downturns. This can include identifying areas where you can cut costs, as well as identifying opportunities for new sources of revenue.
3. Monitor cash flow
Cash flow is the lifeblood of any business, and it's especially important to keep an eye on it during a recession. An good cashflow planning process can help you monitor your cash flow and identify any potential problems before they become serious. This can include identifying ways to increase cash flow, such as by negotiating longer payment terms with suppliers or offering discounts to customers who pay upfront. We have an excellent cashflow planner, along with videos to help guide you through this process, available to download for free (Click here to access the free cashflow planning tool).
4. Manage debt
Debt can be a useful tool for businesses, but it can also be a significant risk if not managed properly. An accountant can help you manage your debt by identifying areas where you may be overextended and recommending strategies for reducing your debt burden. This can include negotiating with creditors for more favourable terms or developing a plan to pay off debt faster.
5. Protect your assets
In times of economic uncertainty, it's important to protect your assets as much as possible. Identify any assets that may be at risk and recommend strategies for protecting them, such as setting up separate business entities to hold assets, such as real estate or intellectual property, or taking out insurance to cover any potential losses.
6. Prepare for taxes
Taxes can be a significant burden for small businesses, and it's important to be prepared for them. An accountant can help you develop a tax strategy that takes into account your business's unique needs and helps you minimize your tax liability. This can include identifying tax credits and deductions that you may be eligible for, as well as developing a plan to set aside money for taxes throughout the year. A good bookkeeper will be able to work with your tax accountant to ensure you know what your tax / GST position looks like throughout the year, so that you aren't hit with any surprise bills at tax time.
7. Make informed financial decisions
An accountant can be a valuable resource when it comes to making financial decisions for your small business. They can help you analyse the potential costs and benefits of different options and provide guidance on which decisions are likely to be the most financially sound. This can be especially important during a recession, when the stakes are high and every decision can have significant consequences.
In uncertain times, a proactive approach to understanding your numbers and streamlining your finances can be the difference between those who survive and thrive, and those who collapse. We can assist you with these tasks in further detail, by reviewing financial statements, developing a budget, monitoring cash flow, managing debt, protecting assets, preparing for taxes, and making informed financial decisions, an accountant can help you navigate through economic uncertainty and emerge stronger on the other side.