It’s a harsh reality that a recession would impact every person in the UK one way or another, whether you are a business owner, a contractor or employed on a full time or part time basis.

The impact of inflation is already starting to take its toll on a lot of small businesses and homeowners, especially in terms of the increase in cost of groceries, petrol and energy bills. On top of this, we’re seeing higher interest rates across the board. Investment portfolios may also be starting to be impacted by inflation and the threat that a recession is on its way.

Many companies are starting to get ready for a decline in consumer spending. Whether you run a physical store, a digital entity or you offer a trade or personal service, taking precautions to recession proof your finances now is a good way to start to tackle what may be to come.

Financial fears and freelancers

It has been reported that freelancer confidence in the UK economy has now fallen to its lowest level since the early days of the pandemic. It is not since March 2020 that the 12 month economic outlook on the self-employed has been so low.

78% say the economy is the top factor that is adversely affecting their business currently, and almost half say they are less confident in their business prospects over the next few months.

More that 8 in 10 freelancers expect their input costs to rise in the next year, with an expected average 15.1% leap in business costs. 37% of freelancers have incurring debt, 15% of which is on credit cards in their company name.

Recession proofing your finances

There are some actions that you can take now to help boost your finances as we face a predicted recession. The Bank of England has warned that we may enter a recession in October, and it could last until the end of 2023.

However, many of us have been feeling the effects since April. Businesses have already had to weather the storm of rising food costs, erratic fuel prices and increased energy bills. Every business’s circumstances are different, and some will find it tougher than others, but we will unfortunately see businesses close down and many people who are self-employed struggle.

If you are employed, you or someone you know could lose their job, you may find it harder to get a pay rise and it could be more difficult to find a new job. The worst of the cost-of-living crisis is unfortunately still to come.

Here, we outline our guide to recession proofing your finances now:

1) Have control of your cash flow

Managing the cash flow of your business is critical. The majority of businesses fail due to cash flow issues, so having a handle on your cash flow, particularly in times of economic crisis, is paramount.

Make sure you know your numbers and have a vision and profit plan for the future. It is also worth including scenarios that can be moved or rearranged depending on the economic situation, to help open up funds when needed.

One way to ensure your cash flow remains how it should is to send out invoices promptly, review your receivables regularly and resolve any issues.

2) Master what you’re good at

Identifying your core competencies and delivering products or services that you know you excel in is a much better way of working in times of economic crisis.

Usually, diversifying your small business is not a bad idea, but adding new for the sake of it is not the best strategy. Attempting to break into new sectors can damage your core operation, and waste time and money that is more valuable than ever.

3) Maintain a healthy level of business debt

Many huge corporations have a huge amount of debt, and small enterprises often mistake this for struggling to survive, when in fact they are using that money to grow.

It is much more difficult for a small business to maintain that healthy level, as they don’t have the same backing. Be very cautious with the amount of debt you can handle.

4) Maintain a healthy level of personal debt

Whether you are a limited company or a sole trader, it can be difficult to secure business loans during an economic crisis, but having a good personal credit score could make this much easier to navigate.

Know the difference between a personal and a business credit score, as this can help if there are unexpected financial issues. If you have great personal credit, it’s far more likely that you will be able to borrow any funds necessary to keep your business afloat.

5) Marketing is key

No matter how the economy is looking, marketing is the best way to survive, yet is often the first thing to be cut.

You need to keep your name out there, letting consumers know who you are, the services you offer, how you can help and why you’re better than your competitors. It is worth exploring paid marketing if that is not a route you’ve taken before, whether that be Google Ads, or social media.

If your product fits, you should also look into video marketing on Instagram and TikTok to draw customer attention.

6) Review the inventory of your goods and services

You may have been ordering the same stock in the same way for years but this doesn’t mean it is the most cost-efficient process.

Spend time looking at your inventory and check that you’re not ordering excessive amounts of certain items that are not being used, or being thrown away regularly if it is perishable. Keeping track of consumer demand during quiet periods will also ensure nothing goes to waste.

Shop around and look at prices from different suppliers or vendors to make sure you’re getting the best price possible for your materials.

7) Build multiple revenue streams

A key way to recession-proof your business is to make sure you’re bringing in revenue from different places, helping to maintain your income regardless of the economy.

Look into affiliate marketing, digital products and monthly memberships, providing customers with different ways of gaining information or entertainment from you, without having to physically make a sale.

8) Reward your loyal customers

Investing in your clients, especially those that have shown loyalty to you and your business, is a great way of retaining their custom when times are hard.

Offering your existing customer base exclusive offers, surprising them with hidden extras and delivering a level of service that is above and beyond is the best way of maintaining those relationships that you already have.

Happy clients and word of mouth is the best marketing, and it doesn’t cost a penny.

9) Get financing before you really need it

Don’t wait until the last minute before you ask for help. Lenders are already preparing for the recession and the first thing they will do is tighten their lending opportunities once the economy plummets.

Secure financing now if you think you might need it, to ensure you’re getting the lowest APR possible. Gather documentation with your accountant, including copies of tax returns and financial statements, which should all be on hand if you are with Gorilla Accounting, as we are already fully MTD compliant.

Position your business for success

Adjusting your business now can ensure that down the line and into the next year, you can try to overcome the hard times as best you can. At Gorilla Accounting, we are passionate about supporting our clients, new and old, and strive to know your business inside and out to help you with your finances.

Switching to Gorilla is easy, and now is a great time to do it. We will ensure all of your accounts are in order ahead of any financial hardship, and ensure you’re paying the correct amount of tax, saving money for you where we can.

Join us today using our online form, or call us on 0330 107 9672.