Herb McMillan For Anne Arundel County Executive
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“Nationals October 2019

Prepping for the [Pending?] Recession

| June 18, 2022, 01:00 PM

Recession. I’m guessing after two years of COVID, that’s not exactly a word most Annapolitan business owners want to hear. But ready or not, it seems like we are barrelling directly towards one.

It feels like weekly that the Wall Street Journal is providing an article similar to this one where investors are warning their portfolio to “hunker down” – or some similar-sounding phrase. And the US Chamber of Commerce was already starting to sound the alarm as far back as 2019 with articles like this one.

According to US News, three major indicators of likely recession include high inflation, a negative yield curve, and geopolitical uncertainty. And as it looks like the answer to those three is “yes,” “yepperdoodles” and “totes” – I think it’s time that we discuss ways to prepare your business.

First, Be Ready to Divest

Temet nosce.

Know what that means? It’s the same advice that the “Oracle” gave Neo in the Matrix. It means, “know thyself.” Which is great advice when you are about to lead humanity in a war against the machines or you’re leading a business in the time period leading up to a recession.

The first step in knowing yourself is to understand your numbers. You need to know what your economic drivers are. And you need to know what services you are currently “overpaying” for. That first one is going to be what pulls you through the next downturn. And that second one is what can drag you down if you aren’t careful.

Changing Times

Recently, it made a lot of sense recently to take out loans and try new things. After all, borrowing money was cheap and the pandemic forced companies to re-evaluate their business model. However, what we can’t have is lingering liabilities from under-performing experiments. And we really don’t want those bills coming due during a time of reduced capital.

Remember, one of the signs of a recession is often high inflation. That means your customer’s money is not going as far as it once did. If your products or services fall more in line with a “want” than a “need” – then you need to be prepared for a reduction in gross sales.

So while we can’t divest from investments that drive our primary economic drivers. You need to take a close look at other secondary expenditures, or expenditures that are proving the ROI you were expecting and see what you can get out from under.

Then, Be Ready to Invest

If you opened that US News article above, I hope you read it all the way through. Because it starts off with a lot of negatives, it also [rightly] calls out that “[w]hile many companies go out of business in a recession, others [will] thrive and grow in the rebound.”

The rationale for getting out of poor investments is twofold. One, we never know how long a recession will last – so we want to have as much cash as possible to see it through. And two, a recession will also identify opportunities to invest – and I want you to be able to take advantage of those.

Good people are about to find themselves out of a job. Can you find room on the payroll for them? Better retail space is about to become available. Can you secure the lease or loan to take advantage of it? Costs of products and services will [thankfully!] be slashed as business owners attempt to spur sales through discounts. Can you stock up or lock-in contracts at rates that are advantageous for your future business endeavors?

Other Consideration

A few other quick thoughts for owners who are making plans for an upcoming recession.

Secure a Line of Credit

Have you secured a line of credit from your bank? I’m not advocating that you use it, but for business owners who have had the good fortune to operate in an industry that has done well with the COVID pandemic – such as home remodeling or online retail – now may be an opportune time to get a line of credit. Just remember this, even if you never have to use it, a line of credit is always easier to get when you don’t need it than when you do. So it may be time to reach out to your bank and inquire about the opportunities they present for an LoC.

Look to Previous Years as a Gauge

For businesses that have been around for a decade or more, look to history as a guide. If a recession were to take 10% of your gross sales away, where does that put you? Using your previous years as a guidepost, what does your business model need to look like to survive that?

Lock Customers Into Contracts

Do you offer a repeat service to your customers? Maybe it makes sense to offer them a long-term contract at a reduced rate? They get the same products and services they have always loved for less. You get an income stream you can count on. That’s a win-win.

Don’t Go it Alone

Look, times continue to be scary. But you don’t have to go through it alone. Join a local Chamber of Commerce (Anne Arundel County | Crofton | Severna Park) to connect with other like-minded owners facing similar challenges. Expand your network through BNI and other leads groups and take advantage of networking at scale (NOTE: all of the local chambers linked above provide their own leads groups with memberships).

Or you may also schedule an appointment with me to see how well you are positioned for a pending recession. As an industry-agnostic advisor specializing in our local Annapolis and Anne Arundel community, I will help you review your people, processes, technology, and financial standing to provide an outside, wholistic opinion regarding how well you’re positioned to handle the pending recession. And unlike other advisors, my opinion is specific to your industry and our area. And, if we discover any challenges we want to address, I have a stable of local contacts to help us resolve them.

After an upfront cost of $3,000 – which includes a complimentary Broker Opinion of Value report valued at $2,500 – our ongoing quarterly fee of $1,000 can be stopped without any cancellation fees. This way, you won’t be tied to another long-term commitment and we will only continue our working relationship as long as I am providing value for you.

Category: Businesses, LIFE IN THE AREA, Local News, NEWS, Post To FB

About the Author - Steve Palmer

Steve Palmer is the Principal Business Broker with Transworld Business Advisors of Annapolis, and currently lives with his wife, Erin, and daughter Isla Mae, in Harwood, MD. Transworld is the largest business brokerage franchise in the world and has conducted over 10,000 business sale transactions across dozens of industry verticals since its founding in 1979. If you are, or have ever considered, selling or buying a business, please reach out to Steve by email at [email protected] or by call or text at (410) 842-6063.

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