February 2, 2023
Business Confidence Slips to Begin 2023
A strong performance by the Massachusetts economy during the fourth quarter of 2022 was not enough to stem…Read More
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Posted on November 27, 2022
In an economy plagued by a pandemic, increased government spending and supply chain issues, the
threat of a recession is keeping business owners awake at night. The U.S. economy shrank by 0.9% in the
second quarter of 2022 which followed a drop of 1.6% in the first quarter. Two consecutive quarters of
negative growth is often indicative of a recession. Despite record job growth this year, the economy has
weakened. Therefore, it is important for businesses to strategize and brace for impact.
Here are 10 strategies to insulate against the impact of a recession:
• Reviewing your business forecast and cash flow budget and make revisions as
• If business volume has slowed, eliminate extra shifts to reduce labor costs
• Prioritize expenses and obligations
• Eliminate nonessential expenses or defer payment
• Recalculate forecasted taxable income and adjust estimated tax payments as needed
debt to determine if refinancing high-cost debt is feasible. Given the current environment of
economic challenges (for example, a business’s lower free cash and reduced profit margins) and
banks’ tighter underwriting standards, refinancing or obtaining new capital may be a challenge.
However, other options may be available. Common forms of debt include:
• Unsecured and secured long-term debt
• Short-term debt (e.g., lines of credit, cash advances and credit cards if the interest
rate is attractive)
• Loans from friends and family
• Personal loans and/or an equity infusion
• Government-backed loans (e.g., SBA loans)
• Peer-to-peer (P2P) lending
• Convertible debt
Meet with your advisors to determine if your investment strategies
need to be adjusted with the current economic outlook in mind.
Merger and acquisition activities have been heavy in
the recent environment and can be a great option to add new business capabilities, skills and gain
market share in opportunity areas. In our recent article, it is noted that higher interest rates lead to
higher discount rates and lower deal valuations – so if you’re in the market to make an acquisition,
the current environment may create attractive opportunities.
Automation has come a long way − especially with the
advancement of artificial intelligence (AI). Business automation and Robotic Process Automation
(RPA) can be utilized to streamline processes which may include:
• Onboarding processes for new employees and customers
• Marketing processes
• IT service support
• Contract generation
• Purchase orders
• Processing invoices
• Routine and repetitive tasks and functions
Frequent layoffs and shifting additional responsibilities to employees without commensurate
compensation can lead to plummeting employee morale and productivity. Be transparent with your
employees as large layoffs may create a harmful environment.
In addition, businesses may benefit from assessing employee strengths and weaknesses to
realign staff according to business needs. In addition, new leaders may be identified and can be
encouraged to take on more responsibility.
For example, a CEO of a newsletter publishing company created a policy where employees were
given spot and special bonuses for new business and money-saving ideas. For some of the larger
ideas, the CEO paid a percentage of revenue or savings. One employee had suggested that they
trim the size of a book by 0.25” or so all the way around. This met certain USPS rules so they
saved an estimated 10% on shipping costs. They were able to keep the original shipping and
handling cost constant − and the employee received a bonus for the idea.
In an economic slowdown, many businesses trim their
marketing and advertising budgets to conserve cash. In fact, businesses should re-evaluate their
marketing strategies to strengthen any opportunities or weaknesses and make the most of their
marketing budget dollars. With online pay-per-click (PPC) and other direct response advertising
methods, companies continue to shift marketing dollars online where they can target a particular
audience. At the same time, if direct mail via the US Postal Service has declined in your Industry,
this could be a time to test a direct mail package because your mailing may stand out today.
for as many potential scenarios as possible and ways to mitigate
those scenarios if, for example, revenues fall short of plan and expenses exceed plan. For
example, if sales fall XX%, we will need to cut travel or selling, general and administrative (SG&A)
expenses by XX% to make up the difference. Run cash flow forecasts under several scenarios –
meeting plan, missing play by 10%, 25%, 50%, etc. Look for ways to conserve and create cash.
Businesses may be able
to benefit from a multitude of tax strategies including:
• Planning for retirement contributions
• Compensation planning
• Accelerated depreciation (Section 179 or bonus depreciation)
• Special studies (e.g., Cost Segregation, Research & Development, Section 179D, etc.)
• Employee Retention Credits (ERC), if qualifications are met – see our article here.
• Clean energy planning and credits
Eric Gelb, CPA
Senior Managing Director, Financial Services
email@example.com | 914.341.7049
Elisha M Brestovanksy, CPA, MBA
Senior Tax Manager
firstname.lastname@example.org | 845.670.7140