This week, I tackle the anxiety-producing subject of a recession and talk about ways that you can prepare for a downturn in your business by strengthening your money mindset and taking certain financial actions now.
A recession doesn’t have to be a looming threat to your business. By taking the steps I discuss today, you can let go of the stress and be ready for any downturn whether it’s a recession or simply a slow season.
In this episode, Danielle also discusses:
What is considered a recession and what happens during a recession | 2:28
The tools you need to strengthen your money mindset for a downturn | 4:50
What financial action steps to take to prepare for a downturn in your business or a recession | 8:55
Options for lines of credit and debt management| 12:35
Should you be doing what other businesses are doing in a recession | 17:00
Need help understanding your numbers? Join our Finance Framework Program and be a part of a community for business owners who want to take control of their financials! Enroll today!
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Full Episode Transcript:
Hello, all you rule breaking entrepreneurs out there? This is Entrepreneur Money Stories, the podcast that doesn’t whisper about money. We talk numbers and money mindset so you can learn to own your finances and boost your profits. So let’s get to the hard stuff.
Danielle Hayden 00:56
Hello and welcome to Entrepreneur Money Stories episode 82. I am Danielle Hayden, reformed corporate CFO, entrepreneur, money expert, CEO of Kickstarting Accounting, Inc., and your host. Today I’m talking about recession proofing your business. We also have Ashley on the podcast. Ashley is our podcast coordinator here. Ashley, thank you so much for being on the show with me today.
Ashley Bernhardt 01:22
Thank you for having me. And hopefully I can be the non knowledgeable person to help you all understand and yell and ask questions that make sense. So I’m happy to be that role and be the the non knowing person here.
Danielle Hayden 01:37
Yeah, I’m really excited to have actually we went back and forth over the last few days. And it actually goes I’m not a numbers expert. I don’t know if I should be on the show. And I said, No, actually, that’s exactly why you should be on the show. There are so many people in the audience that identify as a non numbers person, and I think it’ll be really helpful for the listeners to have you here. Asking questions on on their behalf. So I really appreciate you representing our audience and the listener. So they wanted to be talking a little bit about the recession. And I have been delaying during this episode and putting this content out into the world because there are a lot of different views about whether or not we’re in a true recession, or we’re going to be heading towards a true recession. But after thinking about this for the last few months, I think that these are all action steps that we can take, regardless of whether or not we’re going into a recession. So these are all steps that you can take. Even if you are in a season or valley of your business that is just a slow season or a shift pivot or downturn in your business. So this doesn’t have to be a complete economic downturn. However, it can be just a time in which we’re shifting in business. And so these are all action steps that you can take regardless of whether or not you think that this is a recession.
Ashley Bernhardt 03:03
Alright, so let’s get to the definition of a recession. And the most basic way to explain it. What is it?
Danielle Hayden 03:10
Yeah, I was laughing as I pulled up so the definition of a recession is a period of very economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Last because that doesn’t even mean so here’s what I think we as people and business owners and entrepreneurs now what a recession might mean to us, for for us, it means the economy, in its entirety, overall, just decreases in output. So people in general are spending less money, and this might be different by industry. However, overall a recession means that we are decreasing the amount of spending and this is also from consumers purchasing from our businesses, as well as other businesses purchasing from other businesses, so be to b2b as well. So a recession would mean an overall decrease in in spending also means employment usually decreases. So because we’re spending less our overall employment and employment decreases and we’ll usually see unemployment increase. And then this is also a time that we’ll see interest rates change generally decline, as the federal banks try to support the economy. This can be really important for us as business owners as we decide on when it’s the right time. To take on debt or reshuffle our debt in the way that we hold that. So as we go through a recession, interest rates may or may not change as well, but again, this is just an overall decrease in spending.
Ashley Bernhardt 04:56
So all of that sounds really scary if I’m a business owner, right? Or if I’m anybody. We hear the word recession and we’re scared. So what do we do to prepare for a recession that and how can we prevent us from having such a dip in our in our profits and in general?
Danielle Hayden 05:12
You’re right, it is scary, and I think there’s nothing worse than turning on the news every evening and hearing about the looming recession that’s coming. I think the number one thing that we can do is strengthen our money mindset. We’ve talked a lot on the show about money, mindset, and different ways that you can strengthen your money mindset. However, during these times of a recession, or shift pivot or downturn in your business, this is going to make it really, really important for you to have those tools in your tool belt to implement to keep your money mindset strong. So again, we’re like what the heck does that even mean right? What tools this is where knowing your numbers are, are going to be really important because we can go into avoidance mode when we’re scared. We’re scared. We have something scary in front of us and in our mind if we actually confront it, we might be really disappointed and become even more scared right? It almost is perpetuating it. However, if you are facing your fears head on, and looking at the numbers, you can become more confident and more empowered. As you like stand up to these times, right. You are able to stand up proudly and knowledgeable to say, Okay, I know what my business is doing. I know what numbers I need to pay attention to. I know I’m monitoring this so I can make shifts and pivots in my business before the whole house is on fire. Right. So we’re talking about that a lot lately. We might have a small fire in our kitchen. We have an opportunity to be able to put out that fire before our whole house is on fire if we’re paying attention.
Danielle Hayden 07:02
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Danielle Hayden 07:44
And then one other thing that I want to comment on the money mindset. If you go back and listen to our episode at the beginning of the year on how to set intentions for 2023. We really encourage people to stop with a new year’s resolutions, stop with the goal setting and really set an intention, understand the season that you’re going into for this year. So as we’re thinking about our money mindset, we could do the same thing here. What was our intention for this year? If our intention was to, you know, dinner with our kids two to three times a week this year. As we look at the recession, as we look at the downturn in our business, maybe a slow season, we can be thankful for that time. We’re able to connect with our intention. We’re able to honor this season. We’re not able to be in hockey surf hockey stick high growth mode every single year, year after year. So it might be the universe who might be our intention coming through and helping us balance our business with our intention for for the year. Now if your intention for the year was hockey stick growth maybe the slow time, maybe this downturn this pivot is an opportunity to refocus on the backend of your business, improving our operations, our systems and knowing your numbers.
Danielle Hayden 09:09
Again, I think that’s a great way to put it mindset is a lot and if you can confront the things that you’re afraid of, you get ahead of the game.
Ashley Bernhardt 09:18
Great. So we set our mindset right we do do the work mentally that we all don’t like to do that we like to push away in the closet because we don’t want to talk about our feelings. But that’s, that’s okay. You confront them. We do it we take the steps and then what are the actual steps after we’re looking at our numbers, we’ve made that hard step to go. Okay. I’m gonna look at them. Once we do that, now what financial steps do we take once we see them?
Danielle Hayden 09:42
Yeah, once we see them, we can start putting the numbers into action, right? So people say to me all the time, well, why do I need to know my numbers? Well, if you’re just knowing them and not doing anything with them, it’s not actually going to do anything for you. So once we know our numbers, we can take the steps that we need to start building a what what I like to call our emergency safe fund. Now, I want you to have this this fund for both your business and for you personally. We actually started counting recommend no less than two months worth of expenses, including payroll. So in your business, we want you to have in a savings account and reverb like a separate savings account outside of your operating account that has two months worth of your average operating expenses. And this includes payroll, debt payments and owner’s drawers. So please leave please do not forget that even if you have a downturn in your business of slow season, the credit card company actually does not care. They really do not care. They might let you change your due date that’s about it. They still want their money. If you have a line of credit, bank loans, they are going to want their money and your family so your owner drawers. They might not care that you have a downturn either, right. Your kids don’t care. They want to know what they’re getting this week this month. They want to DoorDash welfare and they might get they want to DoorDash cookies once or twice a week. They don’t care how my business is doing. Just actually not getting a camera to get it so it’s really important. Once we know the numbers, we pull the profit and loss by month for the last 12 months. We’re able to find what is the average operating expenses for the last 12 months. Multiply that by two and then take on average, how much were you paying in debt payments line of credit? How much were you paying to those debt facilities multiplied by two? And then how much on average? Are you taking as an owner’s draw for the last 12 months? Now, that entire fun gets moved over to a savings account. I can hear some people rolling their eyes at me. I don’t have the cash to know if it’s okay, we have to start somewhere. We need to start making progress. So I’m not saying that everybody’s going to have this amount of money and I don’t expect you to but we can start moving the funds over slowly, week by week, month by month and move those funds over to the savings account. We’re not saying that we have to recession proof our business tomorrow. We have to work towards recession proofing our business in the future. So just moving those funds over. And then the same thing for your personal expenses. We don’t talk a lot about personal finances on the show. And that’s very intentional, but I don’t want us to forget that we are people to write like we all have a family. We have to pay our mortgage. We have to be able to continue to withstand outside of our business. And so we want to make sure we have those three to six months worth of personal expenses put aside as well.
Ashley Bernhardt 13:01
So you mentioned credit cards and debt and that sort of thing and being able to pay off your your mortgage. So what options do we have when it comes to credit?
Danielle Hayden 13:14
Yeah, so when we’re preparing for a recession or downturn in our in our business, the benefits of listening to this episode right now. This is a gift and an opportunity that you’re hearing this, you have the opportunity to realign your debt before you’re in the midst of a slow season, economic downturn or pivot in your business. This is the time before you’re in the trenches to start to look at a line of credit. There are a lot of options out there. Specifically, you can talk with your SBA for your state there. Most states and counties have a small business administration that you can contact for for funding. There’s also your local bank so whoever you have your checking account, your savings account, your business accounts where you can contact them to inquire about a line of credit. And then there’s a lot of really nice kind of modern, like options. This was not around years ago, where you can go to like an American Express square Shopify, open box and there are different options for a line of credit or a type of loan from from those places. They’re usually a little bit higher interest rates. However, by creating this option now you don’t necessarily need to pull down on the line of credit. So I’m gonna use American Express, they partner with cabbage as an example, when you open up a cabbage line of credit, if you don’t actually take any of the funds out. You’re not paying cabbage, anything, but it’s available for you when you need it. So if you have a slow month you could pull down $1,000 to help cushion that month for you. And then you’re only paying interest on the $1,000. If you don’t pay the $1,000 back next month, you’ll pay you’ll pay interest on the $1,000 plus whatever the interest was last month. So these are some really easy ways to be able to pull on a line of credit. Now have it available. Again, don’t wait until you’re in the trenches. You’re you’re sitting there scared looking for funding. Let’s get these options in our business today. And there’s also an opportunity here to look at what are you using for debt today. So if you are only using credit cards as options in your in your business, this might be an opportunity to look at a line of credit that has a lower interest rate or other credit cards and have lower interest rates so that you’re not always using your credit card carrying 25% interest rate.
Ashley Bernhardt 15:52
So if you have a line of credit, you have these these great things to help. Do I not have to worry about my emergency fund?
Danielle Hayden 15:52
Oh, good question, Ashley. Yes, you do. I still want you to have the emergency funds. So this is like best case scenario right? Best case, you have both two months worth of operating expenses, payroll, all that sitting in your savings account, plus a line of credit and credit cards. I always say I’m surprised at how conservative I am. I was not that way fifteen years ago. But, I’m very conservative at this stage in my life. And so for me, I want to know that I have both an option for line of credit and the savings. I joke all the time, we have a casino here in Cleveland. And I want to go to the casino here because to me it’s paycheck money, like I’m in town and it’s it’s paycheck money, and so I’m conservative, I don’t lose my money. But if we’re going to Vegas, I will set aside the funds and make sure that I have thought through how I want to gamble my money. Because I can play my favorite games at at the casino and I’m prepared to gamble. That might not be a risk tolerance, right. So I have a lot of friends who love to go to the casino here in Cleveland, and their restaurants are different than mine. So your risk tolerance and your business might be different where you are comfortable, not having as much of an emergency fund. But I encourage you to address why right so why why do you have a high risk tolerance and is your family your customers, your vendors or contractors, your employees? Are they as comfortable with it as you are? I would say probably not? Probably not. Okay, so we were good. We’re preparing for everything. And we see though that other business owners in the industry in general, they’re making cuts, they seem to be doing maybe drastic things should I be doing the same things that they’re doing the I think that this was something that I saw a lot of, especially this fall, we had a lot of big tech companies making cuts and large organizations were really cutting their expenses. And it could have been easy as entrepreneurs to listen to that and to see that on the news and act just as drastically. Now, I want to encourage you, as you gather your analytics, like as you gather your data, right, you’re looking at your profit and loss by month. You’re using our expense grading worksheet. You’re looking at all the expenses that you have in your business, and you’re realizing that Oh, when I was at that high point in my business, I kind of overspend. You know, we were things were going really well. Money was rolling in, I had hockey stick revenue. I was feeling good. So I went ahead and I maybe hired people that it is mean, I purchased software that wasn’t actually the best fit for my business. I went above and beyond right I do the biggest holiday party I possibly could. trimming the fat isn’t the same as making cuts that are going to jeopardize your business. So you might go through your financials for the last 12 months and look at where can I trim the fat, right? Like, did I really need that software? Or was I find that to keep up with my competitor? Did I really need to take that trip to that conference or was I just traveling because it couldn’t last two years. I saw a lot of our clients go gangbusters this year. So maybe you don’t need to continue to travel right you got it out of your system and this year, we’re going to spend more intentionally so it is okay to trim the fat however, I don’t want to cutting into your expenses and jeopardizing your business right. If you’re cutting employees who you need who are playing key roles in your business, you’re gonna end up jeopardizing your business, you’re not gonna be able to serve your clients. You have an opportunity during the recession to come out stronger than the other people in your industry and other people and in business in general. So I don’t want you to jeopardize your business and then lose out on that opportunity to come out stronger. So you can be lean, but also be intentional and be strong. So I think the biggest thing here is as we’re spending money that we are intentional, and it aligns with our attention for the year.
Ashley Bernhardt 16:56
Don’t be Southwest, right? They’re having trouble right now. I think these are all really great things to plan for and then you won’t have this anxiety. You know, like when you know everything that’s going on with your business. There’s less stress. So listen to Danielle. She knows what she’s talking about. She’s here to help you have less stress.
Danielle Hayden 19:51
There is less jobs. I’m glad you worded it that way because this isn’t about being like stronger and better. You know, it is but it’s also about like easing the anxiety and stress of a recession of a downturn of slow season, we can alleviate the stress. Sometimes trimming that in our business is gonna make us feel really empowered like okay, by trimming that now I have enough to set aside for for two months worth of operating expenses and I am living in my business really intentionally so I’m glad I finally got over my fear of this episode. I didn’t want to jump on the bandwagon of talking about a recession because the more we bring it front and center, more we scare each other and the more that we will stop spending and we’ll stop hiring and I don’t think that we’re there. So I encourage you to take the strategies of this episode, not as a way to approach fear, right? Not Not, not another episode that is creating anxiety and fear into you. But an opportunity to say if there’s a recession, I have an opportunity to be intentional. I’m strong and if this is just a slow time or a down season, I can pivot in my business and come out stronger and better than ever. I hope you found this episode helpful. If you are enjoying the show, please subscribe and follow us. Share with one friend or leave us a review. We would love for you to connect with us over Instagram at kickstart accounting. and let us know how we’re doing we would love to hear from you. If you have any content that you would like to hear more about. you can always shoot us a DM at Kickstarter counting on Instagram. we’re here to be a resource for you. so we will keep on showing up week after week, and inspire and ignite this conversation around money.