The Roadmap: Prepping Your Business for Harder Times in 2023

For nearly 15 years, the economy has generally been on an upward path, and as a result, some businesses have become a bit complacent in terms of operations. The recent economic contraction, inflationary pressures, and global geopolitical turmoil serve as reminders of the importance of preparing for the unexpected.

While it may be impossible to predict the timing and length of a recession (and even some debate on whether one has already hit), the following provides five immediate steps you can take to ensure your business survives and thrives during trying times – especially as we look ahead to 2023.

1. Controlling Your Business’s Finances

Not only does this mean making sure your company has adequate cash reserves on hand, but that you also have a clear understanding of where your money is going, how it’s being spent, and whether those expenses can be cut back without affecting operations or customer satisfaction.

Where do you start? To help manage your finances more effectively, it’s recommended you tighten up the cash flow management practices in place at your company by identifying those areas where additional efficiencies can be achieved with minimal effort. Reviewing invoices before they go out can help identify unnecessary expenditures or overcharges; ensuring that vendors are paid on time will prevent late fees from mounting up and solidify key relationships necessary in weathering a downturn; and reviewing accounts receivable regularly will give you an idea of which customers are likely to pay their bills promptly versus those who might need some extra encouragement (or perhaps even some collections efforts).

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2. Diversify New and Solidify Existing Revenue Streams

Success depends on having multiple streams of income from different types of customers or products/services. Diversifying also makes companies less vulnerable when one source goes down due to poor management decisions or other factors beyond their control -so be sure that you’re not relying too heavily on any one source of income. Additionally, efforts should also be made towards reinvigorating your relationships with key customers and vendors so that they’ll stay loyal during difficult times and the relationships remain solid when good times return.

3. Keep Feeding the Marketing Machine

One of the worst things a company can do when heading into a recession is to stop what feeds itself, namely marketing and promotional spend. Management should be prudent in reviewing existing and planned campaigns to evaluate those which are having the most success versus those that are not. A data-driven leadership decision needs to be made in shifting resources from campaigns that are not performing towards those campaigns that are working or showing more promise in order to maintain the revenue base (or even take opportunities from competitors!).

4. Assess Viable Sources of Liquidity – Before It’s Too Late

Possible paths include:

• Seeking a recapitalization or an increase in the existing borrowing capacity by engaging with existing financing partners or finding new ones.
• Bringing on some new equity partners, or finding new ways to raise funds through non-core business divestments that can provide cash infusions without having too much impact on operations (for instance, selling off unused real estate or equipment, or a sale/leaseback of a facility).
• Revisiting return expectations on existing capital investment plans and evaluating whether changes should be made in the size and scope of such initiatives. A penny saved is a penny earned, as the saying goes.

Preparing for a recession may seem like an overwhelming task, but it doesn’t have to be.

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5. Reassess Your Talent

A recession, while difficult, also offers a perfect opportunity for companies to take stock of their employees’ skills and abilities and make changes that will ensure they survive the dip and come out stronger than ever. While it can be uncomfortable, a vital step in that process is to evaluate where inefficiencies have been allowed to exist during better times, and then taking action on making changes to reduce costs and enhance productivity.

Preparing for a recession may seem like an overwhelming task, but it doesn’t have to be. As discussed, there are many things you can do right now that will make your business more resilient against recessionary impacts. It’s important to be prepared and proactive in taking action. The good news is – an ounce of preparation is truly worth a pound of cure in managing your company for harder times.

Mark Sponseller is the CEO and Managing Principal of Morningside Group. For over 25 years, Mr. Sponseller has worked with corporate, banking and private equity clients across various industry sectors. He is a former partner with PricewaterhouseCoopers LLP and Managing Director with Alvarez & Marsal with deep financial analysis, merger & acquisition, & post-merger integration experience. Mark has also held principal roles as Chief Financial Officer, Chief Integration Officer, Global Finance Director, Senior Advisor, and Senior Partner for a number of mid- to large-sized closely held and private equity backed firms.

Paige Letner is an Associate with Morningside Group. Paige recently graduated from Bowling Green State University with a Bachelor of Arts – Film with a Business Administration minor. At Morningside she focuses on business and financial analysis across industries.