Is Your Business Recession Proof?
With the talk of recession this year or next I thought it prudent to ask business owners the question: Is your business recession proof? Not that we agree with the concern mind you as we have long said the economy will slow from mid 2018 growth of 3-4% to 2.0-2.5% this year. And to reiterate, we don't subscribe to the recession talk which is defined by 2 consecutive quarters of NEGATIVE growth. Can growth go under 2% which may feel like a recession sure if the trade spat doesn't get settled in 2019 which we expect. Nonetheless, we have been advising business owners to prepare for slower growth in 2018 which looks assured in 2019. And business owners SHOULD go through the exercise of recession proofing their business regardless.
One of the most important things to consider is to analyze your profit picture in detail and plans to grow in the current year. There are certain steps you can take which we outlined in a prior article to do just that (https://www.charlotteconsultantservices.com/news-update/ending-housing-boom-complacency-planning). We will focus on point #1 in the article or Revenue Mix. Its an important exercise to analyst your revenues across operating segments or product lines to determine areas of more or less economic sensitivity. And to emphasize, it's not only revenues that matter its prioritizing those operating & product segments by PROFIT. Ultimately you want to emphasize those segments that have the LEAST economic sensitivity, but carry the highest profit. Hopefully, your business has such diversification and if not business owners should consider diverting resources to areas that have less economic sensitivity. Why? Because as the economy slows those areas that have more economic sensitivity will see slower demand while those that don't won't. This doesn't mean you should cease efforts in growing revenue elsewhere, but what is important is re-prioritizing or re-balancing your resources to the new economic climate. Failure to do so may increase your risk of failure or at least severe financial stress.
Using the matrix below, write you various operating segments or product line (proposed as well for the new year) in each of the 4 boxes ranking them by Economic Sensitivity and Profits. Obviously you want as many in the GREEN Box vs RED as possible. If not considered those in the ORANGE. This should help you understand where to prioritize your resources in the coming year to recession proof your business.
At TheProfitConsultant.me we combine Accounting (looking at your books), Finance (analyzing business/personal finances) & Economics (changes in economy) with Experience, Insights and Proven Performance to deliver higher profits for business owners. We can also assist in helping developing a plan to recession proof your business.