How to protect your business in a recession

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November 17, 2022
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The UK’s GDP fell by 0.3% in August according to official figures, and if GDP falls for two quarters in a row, that is the definition of a recession. Experts at the EY ITEM Club predict the UK will be in recession for three quarters, which would take us up to the middle of 2023, so businesses need to start thinking about how they can protect themselves before the downturn comes.

Your accountant is the best source of information for you in relation to your business specifically, but here we go through a number of things you can consider doing to protect your business in preparation for the expected recession.

Get your cashflow sorted and deal with any debt

Cashflow is the lifeblood of any business and when there is not enough money coming in on a regular basis, there is no chance of the business surviving in even the most beneficial conditions. But if a recession on the horizon, then focusing on cashflow is essential.

By keeping on top of invoices, chasing payments that are slow to be paid or even using invoice factoring if you need to – where you sell your invoice to a company that will pay you, say, 80-90% of the value of that invoice and they will then chase the debtor for the full payment themselves – you will make sure the business has enough money flowing to pay all necessary overheads. 

Where possible, you should also look to reduce the amount of debt you have in the business. Paying interest on loans during a downturn is not a good idea if you can avoid it, as that is a cost that could be removed in advance if conditions are right. Also, if your business has reduced its debts, then when the recession ends and you come out of the other side, your business would be in a better position to access additional borrowing if you need it.

Insulate your business by cutting costs where you can

Preparing for a recession is never going to be easy, but one thing is for sure – your business needs to start looking at where costs can be cut before profits start being hit. This could mean, for example, reducing production costs, limiting overtime payments, or reducing the number of hours staff work. One of the biggest expenses for many businesses are employees and it may be necessary to reduce your overall headcount for the business to survive. This is never an easy decision, especially during a cost-of-living crisis when people are relying on their incomes more than ever. But it should be considered as a last resort, if necessary, especially if you know you have areas within your business that could be leaner.

Laying people off is never comfortable, and it may not be necessary for your business specifically. But if you do need to do this, make the move sooner rather than later. You must ensure you are working within all employment rules and giving people the requisite amount of notice and redundancy payments. If you are not sure how to do this, then speak to a human resources specialist and get advice to make sure you do not fall foul of any rules.

Let us help you

If you need to consider ways to prepare your business for an upcoming recession, please get in touch with us and we can go through the various options with you.

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