Each year for the past several years, I’ve run a series of articles throughout the year on a single main topic and this year will be devoted to recession-proofing your business.
The start of the year is always a good time to review business plans, but this year—with the possibility of a recession growing—it’s more important than ever to make plans. No one knows for certain when the recession will occur or how serious it may be. It’s been reported that the Fed can’t meet its inflation goals without a recession. The only way to be sure you can handle whatever comes your way and move toward your long-term goals is to make a strategic plan. (The following is adapted from a previous blog to bring ideas up to date.)
Strategic plan versus basic business plan
Is a strategic plan any different from a plain vanilla business plan? Both are intended to help you understand where your business stands now, set goals for the future, and describe actions to help you get where you want to be. And both require continual review and updating as things change.
But I suggest that a strategic plan is more thoughtful, taking into account the “what if’s” that the usual plan does not. Football coach Vince Lombardi said: “Hope is not a strategy.” The Army War College discusses making contingency plans “in anticipation of a potential crisis outside of crisis conditions.” Beyond Plan A—your basic business plan—you need to make Plan B and Plan C, so you can implement them if and when needed.
A strategic plan can also include a reevaluation of your company’s mission and vision. Take into account environmental (climate change), social, and governance (ESG) factors and what they mean for your business.
Planning for good times and bad times
Because you never know the direction in which the economy, and your business, will go, you have to think ahead and be prepared for whatever happens. It’s advisable to create a strategic plan to map out what actions you’d take in whatever economic environment you operate.
Plans for the good times
When the economy is good, and your business is thriving, it’s a great time to go on the offensive. Plan now for what you’d do as your business grows.
Increased revenues. As revenue increases, be sure that profits keep pace. Rising prices for the goods you buy as well as your payroll can too easily minimize or even reduce your profits despite more money coming in the door. Adjusting prices and carefully watching expenses should be part of routine business practice.
Assuming you have more money available to you, plan what you’d do with it. Will you pay down debt, especially as interest rates continue to rise, expand to a new location, or take on new projects?
Staffing. As your business grows, decide whether your current staff is large enough to handle the growth and maintain your quality of customer service. This could mean hiring new employees, so factor in the added cost of their wages, benefits, and related employment taxes. In hiring, keep diversity goals in mind. Don’t ignore the benefits that hiring employees with diverse backgrounds—age, sex and sexual orientation, race, religion, disability, etc.—can bring vibrancy and heighted problem-solving capacity to your business.
If your business is prospering, you may also want to increase compensation to help employees keep pace with inflation. Increases can be made through higher wages, bonuses, or added fringe benefits. Keep in mind that adding fringe benefits may cost you less than higher wages because most fringe benefits are exempt from employment taxes.
Marketing. To maintain your growth, consider expanding your marketing activities. This is especially easy if you have more money coming in than you had originally expected. Revisit your marketing budget for upcoming quarters.
Plans for the bad times
If the economy turns sour or your business experiences prolonged hard times, how will you get through? Planning ahead can go a long way in easing your concerns and ensuring the financial wherewithal to avoid going under.
Cash flow. If revenue coming in isn’t going to be sufficient to cover your bills, including payroll, what can you do? It’s always a good idea to have a financial backstop in place (a rainy-day fund you create or a line of credit you put in place in the good times).
It’s also vital to continually monitor expenses so they don’t get out of hand. As part of a strategic plan, make it a regular activity to review expenses. For example, don’t simply renew an annual insurance policy or subscriptions. Decide what’s needed and look for ways to save money.
Maintaining your staff. The last thing any business owner wants to do is lay off good employees. It’s traumatic for you and the employee (and the employee’s family). Again, a financial backstop is a short-term solution, but you need to find ways to keep employees busy when business is slow. Use the time for training to improve skills or retraining for new positions.
Marketing strategies. There’s a tendency in tough times to cut the marketing budget to save money. But tough times are when marketing is needed more than ever. Think ahead to low-cost marketing strategies you can use, such as social media campaigns (re-train an employee to work this in-house for you?).
Crafting your strategic plan
The Hartford lists 3 phases for strategic planning:
- Review and updating
Consider making your plan now—before a recession hits.
“A strategy is necessary because the future is unpredictable.” ~ Robert Waterman, business management expert and co-author, with Tom Peters, of In Search of Excellence
Get working on your strategic plan so you can be ready for anything. Next month’s blog on recession-proofing your business will focus on handling debt.