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How to Make Lemonade When the Economy Throws You Lemons

Recessions are stressful and challenging for any business owner. Even more so when you don’t know if the decisions you’re making are helping or hurting. Every business owner deserves to have a company with a strong financial future.  

All recessions have their own unique twist; however, they all follow a pattern. Revenue goes down, there are usually losses, and losses require cash. Before the money runs out, you must decide to pivot your business, which hopefully increases revenue and cash. But it may be difficult to know where to start or what to do. 

When Covid hit, like many of us, I realized that the majority of my business was based around in-person interactions. I immediately went to Zoom coaching for all my clients and worked with a marketing professional to increase my digital marketing presence to stay in touch with clients and prospective clients digitally. Further, my pivot included helping business owners with PPP loans. Due to my banking background, I was familiar with SBA paperwork including applications. This revenue supplemented my coaching revenue. My revenue model for these PPP loans was part of the fee upfront and the remainder when the loan closed. The upfront cash helped with cash flow. Without these pivots, my business would have been very different going forward.   

If you believe a recession is coming immediately or if you want to make a plan in case there’s one in the future, it’s a 3-step process: 

  1. Look at your numbers.  
    If you don’t have a financial scorecard, start one. Tracking your level of cash, receivables, inventory, and payables is critical in a recession. Cash is king. It’s important to understand that in a recession your receivables are the payables of your clients, and their receivables are payables of their clients and so on. The chain reaction in a recession can create cash flow impact all along the chain. Determine what your cash on hand is, if you can accelerate collection of your receivables, and if you can take advantage of the full term of your payables without becoming past due. 
  1. Get a line of credit, even if you don’t need one.  
    The best time to borrow money is when you don’t need it. Having a line of credit can provide the cash needed to bridge cash payments until receivables do come in. One month’s revenue is a good number for you to consider. 
  1. Plan and pivot.  
    My plan and pivot included handling coaching meetings virtually, providing a service of PPP loans to help business owners, and creating a new digital marketing strategy. 

When the economy throws us lemons, we need to know how to make lemonade. This 3-step process will help with that and give you the clarity needed to weather a short-term financial crisis.

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