Your CFO Playbook for Recession Planning

Is recession coming? How serious will it be? How will this affect your company?

No one knows the answers to those questions yet, but that doesn’t mean you can’t prepare. Recessions are scary, but seasoned CFOs have a time-tested playbook for navigating recessions. Here are the key strategies you need this summer to prepare your business for the recession.

Forecasting multiple recession scenarios.

Before the recession begins, you should prepare by anticipating several bearish scenarios. gives forecast Fractional CFO Insight about the cash impact, timing and cost structures your organization needs to adapt to recessions. Use your strategic business forecast to plan for situations such as:

  • 20% drop in demand due to slight slowdown
  • Major slowdown due to 50% drop in demand
  • Cost reduction by 25%
  • A major supplier is going out of business, causing a sudden shortage of raw materials

The impact of each event for your business will be different depending on your model, working capital structure, contract length and other factors. Experiment with different expense management and workforce reduction options to determine the appropriate response for each scenario.

Focus on key sales indicators.

The top of your sales funnel will be the first to detect a drop in demand, so pay extra attention to KPIs like:

  • website visit
  • meeting book
  • Lead collect
  • ad click

Go crazy about the drops in funnel volume. Meet with your sales team to determine whether volume reductions are indicative of an early recession or something more mundane like seasonality. Remember that salespeople are naturally optimistic, which can lead to burrowing heads in the sand. You have to be overly pessimistic to compensate.

Rein in cash.

The company with the cash wins the recession. Here are the quick cash levers most companies can pull:

  • Pull in an aging AR via aggressive collection.
  • Pull out the AP without putting pressure on key vendor relationships.
  • Lock in any debt or equity capital that may be pending.
  • Pre-sell products through annual contracts, warranties, or wholesale discounts
  • Postpone major capital investment

Proactively cut down on under-performing resources.

Poorly performing people, products and processes bring down the organization in good or bad times, so pre-recession or early-recession is a great time to shed fat. Collaborate with your team to identify and cut:

  • poor performing employees
  • low margin product lines
  • Slow moving inventory will be sold by fire
  • Inefficient administrative processes that can be outsourced or automated

Delaying such deductions until there is a cash crunch will create a crisis and require more drastic deductions later, so be proactive and act now. Also take positive measures to retain good employees. See my previous article on how to retain employees without raising pay.

Diversify sales toward recession-proof customers.

Government contract and grant programs typically have recession-proof clients. Other consumer businesses see growth during recessions by focusing on frugal alternative products. View our recent articles Which Business Does Well in a Recession To find out how you can match your company to the macroeconomy.

Collaborate with your team.

No one can understand the fast changing world of recession. Collaborate with your sales team, managers, consultants and financial professionals at every step of the journey to keep your vision fresh and complete.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.