How Can Your Accountant Help You Prepare for a Recession?

​It is no secret that a recession may be coming. Business news headlines are filled with analysts and business strategists talking about when a recession may occur and what kind of an impact to expect. As a result, the majority of small-to-medium sized businesses (SMBs) now expect that a recession will occur by the end of the year, though there does not appear to be consensus on the exact timing and severity.

Accountant standing in a downward trending graph looking ahead to see what is coming next.

Only time will tell if/when a recession will occur. Right now, business owners are collectively holding their breath as they wait to see how the economy will progress over the course of the next year, which begs the question: “What should your business be doing during this waiting period?”
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Knowing what you will do during an economic downturn is an important part of any risk management strategy, especially when economists are warning that the nation may be headed for a recession in the near future. 

Large companies will task their accounting and finance departments with providing the data and forecasting needed to make important strategic financial decisions and then lean on their CFOs to captain the ship through the potentially tumultuous waters ahead. But what about small businesses – companies that do not have a CFO or Controller or a finance department or a team of accountants? What can those businesses do right now to prepare for the effects of a recession that may be coming?

The key for small businesses will be to strategically use what they have and look outside of their own capabilities to find the kinds of competencies that they need to hire out. Small businesses will want to lean on their accountant to provide timely and accurate financial information to business leadership.

Maximize Cash Flow
A recession can cause spending to tighten across both consumer and business purchases. As purchasing patterns shift cash flow management becomes more important than ever. As our team explained in a recent article regarding business activity during an economic slowdown, “It is not just major purchases that are being delayed, consumer spending in general is falling. In the same way that many Americans are aiming to put away more in savings, companies must be taking steps now to preserve cash flow.”

But improving cash flow is not simply about saving more money. It also involves strategically timing purchases, improving the efficiency of customer payments, establishing payment terms and policies, collecting on outstanding payments, negotiating vendor contracts, and controlling costs. An accountant is instrumental in all of these areas and should be willing to make recommendations to improve the timeliness of cash inflows and eliminate unnecessary cash outflows.

Identify Cost Cutting Areas
One of the most effective ways to better manage cash flow is to better control expenses. Accountants can advise on areas where costs can be cut with the goal of improving revenue and profitability to protect the business during times of economic uncertainty.

An accountant can be instrumental in helping a business reduce its costs to weather a downturn in the economy because in a small business they are on the frontlines of all things financial. Much of an accountant’s value in this area lies in the reporting that they do on a regular basis. Balance sheets, income statements, and cash flow statements contain key data need to understand the bigger picture of how the business is currently performing to make smart strategic decisions. As a result, your accountant has the data needed to analyze spend relative to budgets to help identify areas where cost needs to be better managed. Reporting can also help identify where waste is occurring that could be eliminated to improve cash flow.

Accountants also have the breadth of knowledge needed to examine where costs can be reduced without compromising product/service offerings to promote long-term growth once a recession is over. In some instances, this may involve automating processes or outsourcing business activities to reduce their associated personnel costs. However, in other instances, reducing costs may involve reducing headcount as well. In a recession it is not uncommon for staffing needs to decrease, resulting in layoffs. An accountant can be instrumental in this kind of discussion as well because they can provide the hard figures related to employee expenses (hiring bonuses, salaries, payroll taxes, insurance plans, benefits, etc.) that need to be understood when making difficult staffing decisions.

Help Secure Business Financing
Where cash outflows cannot be reduced, additional funding may be required to keep the business afloat during a recession. An accountant can provide the reporting needed to aid in obtaining a business loan or possibly help attract investors. While an accountant will not be able to represent your business in negotiations with lenders or sign financing contracts (like a CFO would) the financial reports they generate can add credibility to the business and potentially help assuage concerns that banks or private lenders may have regarding the financial stability of the company.  

Offer an Impartial Perspective
Companies that choose to outsource their accounting activities can receive additional help from their accountant during difficult economic times – the gift of impartiality. An outsourced accountant can offer a completely impartial perspective on the state of your business, which can be especially valuable in a family-owned company or legacy business. Using a fractional accountant brings in a third-party accountant to provide an unbiased view of the company’s finances. Where an accountant is being used in an advisor-type role, this kind of impartiality is absolutely critical.

 When you need to hire an accountant, contact us! We offer outsourced accounting services as well as accounting recruiting services to help companies to find the level of accounting support they need! Find out more about how we serve companies in Washington, Oregon, and Colorado by getting them access to the right accounting professionals for their unique business needs in any economy.