Recession-Proofing Your Business

Recession-Proofing Your Business

The Real Business Podcast, presented by MassMutual, is hosted by business exit planning expert Brian Trzcinski. In this episode, we welcome entrepreneur, author and leadership expert Richard J. Bryan to offer his expertise on ways to recession-proof your business. The year ahead may present challenges, but business owners who are prepared will be in position to seize opportunities and grow their businesses.

Interview Transcript

Presented by MassMutual Hosted By Brian Trzcinski, a certified Exit Planning advisor and Director of Business Owner markets at MassMutual.

Brian: I’m joined today by Richard Bryan, author and business owner himself. And he’s here to talk to us about recession proofing your business. Richard, how are you doing today?

Richard: I’m good. How are you, Brian?

Brian: I’m doing okay! Great to have you here!

Richard: Thank you for having me.

Brian: We’re going to talk about a lot of topics related to what’s happening with business owners. What they need to do to think about getting ready for a potential recession coming and really looking forward to hearing your ideas and your tips to help business owners get ready for, you know, economically what could be some tough times. We know the definition. the textbook definition of a recession is two consecutive quarters of negative GDP growth. The Conference Board in October predicted a 96% likelihood of a recession within the next 12 months. The U.S. has seen 33 recessions over the past 165 years. But the good news is, I guess as of now, it’s typically not a recession until the National Bureau of Economic Research makes a formal declaration which they have not yet they look for things like a slowdown in consumer spending, right? A decline in the GDP, a rise in unemployment, stagnant retail sales, and incomes falling with the rise of inflation. Now we’ve definitely seen some of those bullet points, but we have not seen all of them just yet. And thus we’re not officially in a recession. But the challenge for small business owners, Richard, is that when recessions do hit, they typically last anywhere between two and 18 months, and that’s a duration that can potentially put a significant amount of stress on a business. And right now, I think the key for business owners is to keep things simple and focus on the areas of their business that are necessary for their long term health. Richard, where should business owners focus and what should they do today before that recession hits to get themselves and their businesses ready?

Richard: Well, Brian, thanks for setting that up so eloquently. I’ve been a business owner for the past 25 years and I’ve been through several recessions, most memorably in 2008-2009. And I think, lessons learned from my experience, were sort of getting out ahead of things and planning out different scenarios is a pretty good strategy. So in other words, what do you think the worst case medium case and best case scenarios are for your business? And base this on sales declining significantly for the worst case scenario? I think obviously after what we went through with COVID A lot of businesses have seen this one play out when they were temporarily shut down. But I think investing the time and the effort and having the financial software to make this process quick and flexible, pays back in a big way.

Brian: That’s a great point, Richard and I think when we talk about sort of keeping things simple, and tell me if you agree or disagree, or have other areas that business owners should focus on – I really think it’s three key areas right now. I think it’s their employees. Right? Making sure they keep their employees on staff. Managing cash flow, making sure that there is cash and, and obviously, conversely, how they’re going to handle debt. And then making sure that their business is operating as efficiently as effectively as possible. So if you would, Richard, let’s kind of dive into each one of those. Let’s start with employees. In other words, keeping key employees on staff and you mentioned sort of getting ready for this with lessons learned from COVID. And we did some research with business owners. The 2022 Business Owner perspective study told us that staffing issues, employee staffing issues, was the number one business concern, both in terms of losing staff and the ability to hire staff coming out of the COVID pandemic. Right. And we know that keeping key employees loyal, having those people that are vital to the success of the business, on staff is critical. And when there’s a recession, things have to get cut. And obviously the last thing we want to cut are our employees. So if we’re already running lean coming out of the pandemic, how can business owners really do what they need to do to not have to cut more staff and keep those vital employees on the payroll and working through a potential downturn in the economy?

Richard: I mean, that’s a great question, Brian. This is probably the thing I get asked most when I’m out and about speaking and I think in terms of retention, I think it starts with creating a culture that people enjoy working in. And that communication is key there, being open about what’s going on in the company, your challenges that you’re facing, as well as your wins and in my experience, people really appreciate this, and better understand the decisions that you’re making, but also personalize in your communication. So rather than blanket messages, making sure that everyone on your team understands how they can make a difference even if you’re in a downturn or a recession. You know, what can they do to make things better, and to come up with solutions or better ways of doing things? But I think flexibility is also huge. You know, it’s very topical at the moment in terms of do people work remotely or in a hybrid situation? And I think giving people flexibility on hours and days off, especially those that are either working parents or maybe caring for another family member – that can be absolutely huge. And you know, not micromanaging people. If you’ve got good people, trusting them to get the job done. My assistant in the UK works completely remote. And the more I trust her the harder she works. It’s a relationship based on mutual trust and respect.

Brian: Yeah, Richard, this is our third podcast episode and I think the issue of communication has come up in every single one when it comes to employees. And it really seems to be one of the most important things around employee retention, employee loyalty and employee morale, is that good communication. Before we move on, I just want to dig a little bit deeper here because where all those things are good, and important and make employees feel good, and at the end of the day, employees work to get paid, right? I mean, you know, obviously if you’ve got a good culture and you’ve got a business that you believe in, obviously that’s a big part of what you do. But how do you motivate employees outside of monetary compensation, right? If things are really tight in a small business, and the recession is hitting hard and making payroll is even tougher than usual? What can employers do to really entice those people to say, “hey look when things turn around, I’m going to make it up to you trust me on that. But right now, things are tight.

These are things I can do to make sure that you and your family are taken care of and that you stay here. What can those business owners do when the money’s that tight?

Richard: Well, I think I just mentioned it in terms of the flexibility I mean, I don’t think we should overlook that in terms of, you know, surprised me in the past just how open people are to even taking reduced hours in the short term. You know, I don’t think you should underestimate what people will do to help you out if you ask them and you’re sincere, and you’re open and honest with them, but also think in terms of retaining people. If you can’t pay them more, you know, giving them more responsibility, giving them some training and development, allowing them to maybe cover for their boss when the boss is away, you know, that can not only be motivating for them and that they feel they’re taking a step forward. It’s also good for the business in terms of cross training, and succession planning. So if someone does leave, you’re less vulnerable.

Brian: That’s a great point. The cross-training is fantastic because especially to Richard right if unfortunately, you do have to cut some staff. You need people that can cover up and work in the areas that maybe were staff reductions had to happen. So the ability to build a bench of employees that can do a lot of different things in the business is, you’re right, it’s not just beneficial to the employee and their long term development, but for the business itself. That’s a great point. All right, well, let’s move on to managing cash. Managing cash flow is obviously another key area focus at any point in time in a business but it really gets magnified during a pandemic or during a recession or or some emergency like that. It’s a good idea right now, I think, to establish an emergency fund in the business, we always talk about having emergency funds on our personal financial side. The same thing holds true for a business owner, you’ve got to have that slush fund or that safety net in the business should you need it anywhere between 3 – 6 – 8 months is a good target. In our business owner prospective study we asked business owners if they were looking to establish an emergency fund coming out of the COVID pandemic. In other words, was that another lesson learned? And I think the answer to that question resoundingly was YES. 80% of the business owners that we surveyed, Richard, said that they had established some sort of emergency fund coming out of the pandemic so that they’d be better equipped to manage whatever the next emergency was. How should business owners truly monitor cash flow effectively, and what steps should they take to have that safety net in place? And one other thing I’ll add to the question Richard, too, is how does that sort of conversely, managing debt? Because obviously, that’s the other side of the coin that the business owner has to worry about as well. Right?

Richard: Yeah, this is all good stuff, Brian. I grew up with my great grandfather who actually started our family business and one of his mantras was good businesses don’t go bust because they’re not making money they go bust because they run out of cash. And you know, cash is always king, but I think especially when you’re coming into a downturn or a recession, forecasting your cash flow has become so fundamental. And making sure you’re doing this on a regular basis, so that you’re seeing these problems coming and you can predict things rather than suddenly you’ve got a cash crisis on your hands. I think you’ve already mentioned it but stacking away cash when times are good to give you a buffer – for my business, we always want to make sure we’ve got half a million dollars in cash as a buffer. And then, I think prearranged lines of credit with your bank and your lenders is always a good strategy, although these can be withdrawn at short notice so I think it’s good to have, but I actually like to have a facility where you can raise cash quickly. And whether that’s borrowing against an investment portfolio, or some other asset. You need a backup plan because when your business needs cash in a hurry, you don’t have time, even if you’ve got the assets to get a mortgage. You don’t have time to go through that process and put that in place. And I think you always need a backup plan to be able to get cash into the business quickly. And I’ll give you an example because I think in times of crisis, cash is more important than profit. And when I had my car dealership business I remember sending 100 used cars to auction, but no reserve. So we knew we were going to lose money on the cars. But actually at that moment in time, cash was more important because your number one job as the CEO is to survive, and that the business survives particularly in a downturn. I think having some strategies that you know you can generate cash quickly and have that cash injection into the business is so important.

Brian: That’s a great point. I love that quote from your great grandfather. That’s fantastic. I think it’s also important for business owners to remember. I think this gets forgotten sometimes, that you’re not the only one dealing with this struggle. Right? Your suppliers are dealing with the same recession, economic struggle, right? Your landlord is dealing with the same, right? They have issues that they have to manage, just like you do. And I think good steps for business owners to take is to kind of sit down and say… Okay, who are the most important relationships that I have? What are the relationships that I can’t lose? Is it my lender? Probably. Is it my vendors? Most likely my customers, definitely. And solidifying those relationships and building loyalty through negotiated flexibility, right Richard? You talked about flexibility with the employees, I think you also have to have flexibility with your lenders, your vendors and your customers as well, don’t you think?

Richard: Brian, I completely agree. And I can give you a real world example of that. We have a commercial real estate business based in the UK and thankfully, we’re well funded and we have some great tenants, but we actually proactively reached out to all our terms during COVID and offered them a rent free period for 12 months and said that we would add the year on to the back end of their lease, just because we knew that some of them were we’re having a cash crunch because their sales have dropped to net zero at one point. And actually only one of our tenants took us up on that. But I think what it did was it really solidified those relationships because they could see that we were not only thinking of ourselves, we were thinking of them as our long-term partners and how could we help them at a time when they were in desperate straits and their sales have dropped through the floor, and I think just having that open mind to yes having a list of okay, who are the most important people to me in terms of funders, suppliers & customers, but just reaching out if you’re able to do so, and having those conversations can really make a huge difference to your long term relationships.

Brian: Yeah. 100% Richard, that’s a great example and exactly at the heart of what this is all about. And I think even taking it a step further too, kind of thinking about being more proactive, because again, we’re not officially in a recession yet, but so we want to be proactive here. I think times like these really show us the value of diversifying your relationships. Not being too dependent on any one vendor, not being too dependent on any one customer. Because again, they’re going through the same struggles. And if a vendor goes bottom up because of the recession hitting them, or customers aren’t able to purchase at the same level that they were in a different economic state, that’s going to impact you even more. So we always talk about diversification of vendors and customers and not being so reliant on one or two key accounts, if you will, being important to business value, right? Business value is impacted by that. But at times like these, it really becomes more important. Do you agree with that, Richard? Is that something that you did in your business? Oftentimes, is just kind of had that diverse group of strategic partners if you will, to be ready for these types of events?

Richard: Yeah, absolutely. I mean, for me now it’s more our funders on the commercial real estate side but previously in the dealership business, it was our manufacturer partners. What could we do with them to come up with some contingency plans, and I think just being open and having those conversations puts you both in a better position. So, I totally agree about being proactive and having those difficult conversations. I think one other thing is just to bear in mind, you know, what other assets can you borrow against whether it’s real estate or plant or machinery land might have, you know, that you can proactively either sell to raise cash or have some sort of finance over so that you’re ready to go, if you need cash in a hurry, because I think a lot of times when people need cash, it’s getting it into the business quickly enough, that becomes the key.

Brian: Absolutely. Let’s move on to the last area of focus during these times. And that’s around analyzing the business’ operational efficiencies. You know, we hear a lot of talk about supply chain, and issues with the supply chain. And that’s more at a macro level, of course, obviously in the news. But even if we drill it down at the micro level and look at that within a business, a lot of business experts that I’ve spoken to over the past year or two, they say these supply chain issues always existed in these businesses, they just didn’t realize it until the pandemic, right? The pandemic puts the microscope on those issues that they always had, which I think, you know, the good news now is that many business owners didn’t realize those issues that they had and how their businesses were operating and they were able to fix them. And at least the ones that came out of the pandemic successfully. Maybe there’s opportunities to go even further, I mean there’s never a bad time to streamline operations and obviously the employee piece of the puzzle also affects that, and is also going to affect the operational efficiencies in the business. So how do you recommend Richard, a business owner begin to examine where their operational deficiencies might exist in their business? And what can they begin to do to identify and fix those problems that they might find?

Richard: Well, I think there’s a number of areas here. I mean, for me, depending on the type of business inventory is a huge one, right? I mean, too much inventory, especially when sales slowed down, ties up a lot of cash. I think being prepared to be realistic about and liquidate that inventory to free up cash in the business is always key. I mean, I gave the example earlier about sending the used cars to auction because cash is more important than profit. But I think if you’re ahead of the game, you can see that coming. I mean, I work with a tire company who found exactly this problem, you know, sales were riding high last year, ordering, ordering, ordering, and suddenly sales slowed down and they have got so much inventory and you start paying demerged costs and that can really hit the business. So I think doing that is key. I think also sometimes when you’re the business owner, it’s hard to see the wood through the trees and getting an outside perspective can be super helpful. I mean, I would say that to a consultant, wouldn’t I? But I think whether it’s your trade association and outside advisor or consultant, your CPA, getting some sort of benchmark information for your business against other businesses of a similar size and scope is super helpful because it can let you see those areas where maybe you’re off, and whether that’s sales overheads, headcount or margins, a lot of times it’s margins that can be off. And just seeing that and getting some honest feedback is really helpful to know where you need to focus your attention.

Brian: This is definitely a time to be leveraging your resources, advisors that you work with business coaches, outside expertise, absolutely, they can definitely give you that viewpoint of your business that you may not be able to see because you’re so close to it. That’s an incredible point, Richard. I think too, in terms of kind of operationally protecting your business. I mean, I think we talk all the time about the importance of having recurring revenue being something that’s so so critical, right? I mean, that’s I got to think, Richard, that as a consultant, that’s got to be something you recommend often, right?

Richard: No, absolutely. Yeah. I mean, looking at areas of your business where you can turn that into recurring revenue is absolutely huge. Whether it’s a subscription or getting people on auto pay. I think that that will help tremendously.

Brian: Yeah, and it’s gonna help long term. This particular podcast is about dealing with the recession in a relatively short term time period. But all of these strategies that we’re talking about Richard they’re going to improve the value of your business long term.

Richard: I was just gonna say that. I think I speak a lot about crisis management, business turnaround, but actually, if you put a lot of these strategies into place in your business, the worst case scenario is you’ll make more money, because it makes me more efficient. Right? They’re good things to do anyway. And I think sometimes when times are good, and you’re making money and generating a lot of cash, you don’t tend to focus on this and you can get a little bit sloppy and, and just having the discipline to focus in on the areas we’ve talked about is huge.

Brian: And the second worst thing you’ll do is make your business more valuable and more transferable so that when somebody comes along, and you’re trying to exit, right? And then the last thing I want to mention too, this is an interesting sort of idea that I hear a lot about now this whole notion of kind of niching down during this kind of time period, because a lot of businesses, I don’t want to say all things to all people, but a lot of businesses you know, they strive to be able to offer a diverse group of products and services and meet a lot of different needs. But I hear a lot of sort of business coaches these days saying, ‘you know what? In these kinds of economic situations, that’s not necessarily the right strategy.’ It might be better to niche down in other words, cater so much to a specific need, a specific service that you offer, that you become the dedicated resource, the go-to business for it. What do you think of that concept?

Richard: Oh, yeah, I couldn’t agree more. I mean, I can give you another example from our dealership business, you know, we fields used to when they would meet would talk about what’s your revenue, which is an ego thing, right? “Revenue is vanity, profit is sanity,” is the old mantra from the CPAs. And, you know, we used to do a lot of national fleet sales, where we would sell vehicles to Avis, Hertz, whoever – any big fleet anywhere in the country. And that was really a bit of a vanity project, because when you looked at the margins attached to that business, they were pretty lean. And one of the things we did in the business in terms of niching down was to say, you know, we’re not actually going to do that business anymore, which means our revenue is going to drop but we’re going to focus on retail and local business. So our revenue dropped, but our profit margins increased significantly. And I think it’s being prepared to let go of some of those sacred cows that are ego-based and being realistic and looking at your business from a margin point of view, not just a sales point of view, because that’s what generates the bottom line and business is all about what you keep, not what you sell in the first place.

Brian: Yeah, definitely. Well, we spent about 20-25 minutes here, Richard, I think talking about some really good strategies and tips for business owners to be proactive, get their businesses prepared. Like you said at the outset, a lot of lessons were learned coming out of the COVID pandemic, but the learning should never stop. There’s always more that we can do to run more efficient businesses. And be ready should a recession hit making sure those businesses are protected and ready for success in the long term. Are there any other final thoughts Richard or any other final tips that we haven’t discussed today that you’d like to add as we close out the episode?

Richard: No, I think just being curious, right? You’re always learning. The minute you think you know it all, you’re finished as a business owner, and surrounding yourself with smart people, whether that’s advisors or other business owners that you know, doing some peer learning. I’m a huge fan of peer learning groups for business owners. They can be tremendously valuable. And I know when I went through 2008-09, I was in a CEO peer learning group that was absolutely invaluable for me at that time. To keep learning, to keep developing and to surround yourself with smart people is always a good strategy.

Brian: Well, Richard, again, thank you so much for joining us today and sharing your thoughts and insights. This has been a great conversation and I’m sure one we’ll continue in the future down the line. And to all of our listeners out there. Thank you so much for listening to ‘Real Business, Where Business Gets Personal,’ and we look forward to having our next conversation and helping business owners find success in their business and their personal for the long term. Thank you, Richard.

Richard: Thanks, Brian.

Thank you for downloading the real business podcast where business gets personal, presented by MassMutual subscribe on Apple podcasts. Spotify, or your favorite podcast platform. To learn more about our topic in this and other episodes, visit The views and opinions expressed by our guests are their own and the information provided is not intended to be used as legal or tax advice. You should seek advice on legal or tax questions based on your particular circumstances rather than independent attorney or tax advisor. Copyright 2023. Mass Mutual Life Insurance Company all rights reserved.

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