It’s nice when everything comes together for a video like it did with this one. But before we dive into preparing for a recession, it’s best to talk about what a recession is. We know it’s no fun, but what is a recession, really?
A recession is when the economy experiences a negative GDP, falling retail sales and increasing levels of unemployment. It causes monetary shrinkage to income and manufacturers, along with other businesses for an extended period of time. It is part of an unavoidable part of the business cycle, and it often creates significant havoc among many small businesses when it happens.
In this latest episode of SmallBiz in: 15, Stoyan Kenderov Chief Operating Officer of business payment platform, Plastiq, sits down with Shawn Hessinger, the Executive Editor for Small Business Trends, to discuss what resources and tools your small business needs to ride out the recession and maybe even prosper during times of recession.
You can catch up to Stoyan Kenderov at https://www.plastiq.com/ if you need more information after watching this episode.
How to Survive a Recession: Liquidity is Key
Shawn: What do you think the greatest risks are that small businesses face in a recession?
Stoyan: The number one reason why businesses go out of business is liquidity. So liquidity is something every small business in pre-recession or recession has to go fix ASAP.
“Liquidity is the one thing every business has to focus on right away as the recession signals come in and fix that as much as possible. And there are many ways to do that.”
Shawn: What precisely are we talking about when we talk about liquidity?
Stoyan: When we talk about liquidity, that is the money that a business needs to meet its obligations. And every business makes some money and also orders supplies and pays workers on the other side. And the money that a business needs to pay for those obligations is what keeps the business liquid.
“It’s rare that a business buys materials and sells them on the same day, so usually, some money comes in with some frequency and some money goes out with some frequency. And aligning these two is not only an accounting problem; it’s an operational responsibility of a business owner.”
Stoyan goes on to tell us that small businesses “need to have visibility or a dashboard somewhere to see if they are still liquid” and ask themselves questions like: “Are the commitments now exceeding the projected cash flow? What is the risk on my income side? Are some of my clients going to go out of business or reduce their demand, and, therefore, I can’t pay my vendors later? So that is the problem of liquidity that a lot of businesses, especially early on, cannot get right, don’t know what tools to use, how to create more leeway for themselves, etc.”
What Happens During a Recession?
In this section, Stoyan and Shawn discuss what happens during a recession and where small businesses can make changes to manage it.
Shawn: How does a small business save money and time during a recession?
Stoyan: Recession is a good time to put your house in order, and we have now been accelerating going digital for all businesses small and large.
“Small businesses should look at where they organize their payments, where they organize their invoices, their accounting and the subsequent processes. And there are now so many great tools out there for front office automation, your social media and your marketing automation and your digital store where you sell your goods.
But now there are also fantastic tools for back office automation such as Plastic, where you can put all your vendors, all your commitments, as well as all your customers, and all your receivables in one place, and see how the cash flow connects through the business.”
How to Prepare for a Recession: Tools You Can Use
Shawn: Can you discuss ways that you might, at least partially, recession-proof your business.
Stoyan: If you want to know how to prepare for a recession to make it recession-proof, there are ways to go about it. We happen to be in a position to help a lot of businesses in a recession.
“So—luckily, there are tools for you to use if your vendor is not giving you the extension you need. You can come to somebody like Plastic where you can pay with credit cards.
The payment on the credit card goes to the vendor right away. But you’re now looking for 30 to 45 days to pay off that statement. So you just created for yourself the room on that side, on the vendor payment side.”
Join Us for the Rest of Preparing Your Business for Recession with Stoyan Kenderov
So are we headed toward a recession? Maybe so, but after listening to this latest Small Biz in :15 you should now have more resources and tools to handle it. Be sure to tune in and catch the rest of the video where Stoyan Kenderov also discusses other key points like:
The big mistakes businesses can avoid as a recession approaches,
How to manage your liquidity, and
Other helpful business tips for surviving a recession that you’ll find invaluable.
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