It’s common knowledge that having a business plan is helpful, if not essential, in running a successful business. But savvy business owners know that having backup plans to address anticipated or unexpected contingencies is just as important. Understand how contingency planning operates and what matters you should address so that you’ll be prepared to handle a recession if it should happen.
How plans B and C work
The concept of contingency planning is nicely illustrated by HUD’s approach to winter planning back when COVID-19 was a serious issue. Plan A covered the usual or normal projected needs of communities for the winter. Plan B, called a marginal surge, urged communities to anticipate additional needs if there was a surge in demand (e.g., more shelters needed). Plan C, labeled substantial surge, helped communities plan if there was a dramatic increase in demand for services. In effect, each plan—A, B, and C—addressed different levels of need.
This same A, B, C, approach can be adapted for your business when it comes to recession planning. Current talk about a recession seems to indicate that there’ll be a mild one, if at all. Plan A can cover what you’d do in this situation. Should a recession prove to be more serious, then Plan B can address additional steps needed to adapt to the situation. And Plan C can deal with what you’d do if a recession were to be extremely serious, like the Great Recession of 2008 and 2009.
Business matters that planning should cover
As with a basic business plan, contingency plans should look at certain areas:
Marketing. As demand slows in a recession, what are your plans to reach new customers? Thinking about this now—because any recession hits—allows you to do it without pressure. Good marketing ideas can then be implemented, even if there is no recession.
Management and personnel. With a recession, your revenue may decline, making it challenging to meet payroll. How will you handle staffing at that time? This important question was discussed in a previous blog.
Finances. Last year, the Federal Reserve Banks’ Small Business Credit Survey found that 59% of small businesses were in fair or poor financial health. This is a very troubling statistic when facing a recession. The takeaway: now is the time to get your financial house in order. Interest rates remain high and aren’t likely to decline anytime soon. If you have outstanding loans, it may be costly to continue carrying them; try to pay them down while revenue remains reliable. New borrowing may be very challenging. Put cash flow management tools in place if you don’t already use them to ensure you’ll pay your bills on time and maintain or improve your business credit.
Supply chains. If your business is inventory-based, a recession may hit your vendors. Do you have backups in your contact list? Have to discussed working with them? Again, inventory planning can always benefit from having a wider array of suppliers.
Final thought
You may be thinking “why plan for a recession if a recession is unlikely to happen”? Sure, planning takes time. But, as President John F. Kennedy said, “the time to repair the roof is when the sun is shining.”
You won’t have wasted your time with planning; it gets you thinking.
Find more helpful information on business planning presented in earlier blogs.
