The "R-Word"

Another Recession? How to Prepare for Hard Times

Recession. Many Second Wind members vividly remember “The Great Recession” from late 2007 until mid-2009. It is such a painful memory that the mere mention of the word “recession” is enough to cause business-owners a loss of sleep. Before you reach for the ZzzQuil, let’s examine a few facts and some suggested preparations.

What exactly is a recession?

A recession is defined as a contraction in economic growth lasting two quarters or more as measured by the gross domestic product (GDP). Since the end of World War II in 1945, the U.S. economy has weathered twelve distinct recessions.

We’ve enjoyed a robust economy for so long that all of the economic woes - inflation, rising interest rates, pain at the pump, etc. almost don’t sound real. In fact, from the Great Recession up until the pandemic, the U.S. has enjoyed the longest period of expansion on record. 

History tells us that with recessions, it’s a question of when, not if. How do you prepare your agency for it without freaking out? Knowing some economic facts and planning ahead will help you when the “R-word” hits the fan.

Even though they’re inevitable, recessions are not interminable. Recessions are historically ten months long, while expansions, on average, last fifty-seven months.

Since the Great Recession, most smaller agencies have become leaner and more careful about financial management. But that means we have a lot less leeway to reduce costs should a recession occur. Following are a few tips to help you clear the decks for battles to come.

Stick to your business plan. Yes, you may have to make some adjustments to address short-term problems, but keep your eye on long-term goals. Continue to make decisions based on your plan, and avoid reacting in panic mode to the pressures of immediate circumstances.

Keep an eye on your financial statements. To make adjustments or needed economies, you must have a clear idea of your current financial standing.

Watch payroll and overhead against AGI. Know the ratios for a healthy agency. Watch liabilities and debt carefully. You can fend off disaster more easily if your agency is already operating within sensible standards.

Keep an eye on clients’ financial status, too. Discreetly inquire into client credit ratings and stay attuned to market rankings for client companies. Watch for slowdowns in their paying agency invoices, and be prepared to have a discussion about collection times. Develop some discounting strategies to encourage timely payment so you can offer those if clients start to stretch out payments.

Proactively recommend ideas to clients. Don’t wait for them to assign you a project. As budgets tighten, marketing may become the first casualty. Stay relevant—and valuable—by offering ideas that are cost-effective and results-focused.

If you must cut payroll, think about alternatives to termination. You may be able to hang onto key personnel if you reduce hours rather than let an employee go. But if it is necessary to make cuts, make them and get them over with. 

Make sure you have a cash reserve in case of a financial crisis. Many financial advisors recommend ignoring the market news and focusing on building savings. Start now.

Keep pursuing and pitching new business.You must have new accounts in the pipeline in case current clients roll up the sidewalks.

Watch employee morale. It does not hurt to have a company meeting and reassure your team that you are watching the markets and keeping tabs on client business. Ask people to help by keeping their eyes open for potential new business referrals, and welcome suggestions for small economies.

Even the prospect of an economic downturn can be scary, especially for smaller businesses. Smarter, sharp-eyed management can protect your agency from disaster, and help you stay strong through a downturn so you can hit the next expansion running.