Gini Dietrich

Four Tips for Communicators to Prepare for a Recession

By: Gini Dietrich | November 19, 2019 | 

Four Tips for Communicators to Prepare for a RecessionWhat goes up, must come down.

It’s true of balloons and it’s true of the economy.

As a business owner, a recession is a pretty scary thing—and something that can be challenging to predict.

But knowing that it’s coming helps, and even if the downturn that some experts think is going to be coming in the next year or two doesn’t happen, it’s best to be prepared. 

When the Great Recession hit us in 2008 and 2009, the economists were talking about it as early as 2006.

They warned business owners and leaders that it was going to be a bad one and, while I heard what they said, I really had no idea what it would mean for me and my business.

Let’s just say it was devastating.

Even if I had understood how it would affect my business, I don’t think I would have been prepared for the near total destruction it had on so many of us.

Perhaps that’s why everyone is being so cautious right now—it’s close enough in our rear view mirrors that we know what to expect.

And it’s not good.

Communications Is a Leading Indicator

Everyone is talking about another recession.

The economists are expecting it, and we’re all holding our breath to see if and when it happens.

I’ve only had to manage through one recession as a business owner and that was enough for my lifetime.

Unfortunately, I do think another one is on the horizon.

What we do tends to be a leading indicator and I’m seeing some of the same trends we saw in 2007 and 2008, such as:

  • Clients have begun to take marketing and communications in-house.
  • Retainers are drying up in favor of projects.
  • Clients won’t negotiate a budget increase for next year.
  • Prospects are slower to make decisions. 

In my work with agency owners, they’ve said this entire year has been like that.

It could very well that people are being cautious, but we definitely continue to see a, for lack of a better term, tightening of the belts.

We’re doing it in my business, too. 

When times are good, we all tend to get comfortable and perhaps spend money on things we don’t really, really need.

When we anticipate a down economy, we all retreat.

It’s probably the opposite of what we should do, but human nature is very strong.

How a Recession Affects Communicators

If we are indeed headed for another recession, there are several things you can expect that will help you prepare.

Clients will begin to delay payments.

We have a great internal process that allows us to be paid within 15 days of an invoice being issued.

But during a recession, that could extend to 30 or 45 days or longer. 

In 2011, we were coming out of the Great Recession, but were hit with the debt ceiling debates and people began to retreat again.

It’d been a year since things had started to stabilize a bit, but not enough time to save enough cash to weather another storm.

So when clients began to delay payments again, it almost crushed us.

I was literally days away from filing for bankruptcy when our 90+ days of accounts receivables began to come in.

The phrase “cash is king” is very real because it allows you to weather these kinds of storms.

If you don’t have at least 90 days of expenses saved (and this goes for your personal life, too), you may not make it.

Your goal should always, always be to have enough cash to help you if clients delay payment by 60 days or longer.

Some business owners or leaders will use a line of credit to make sure payroll and expenses are paid when client delays happen—and that’s great, as long as the line of credit already exists.

If you try to get a line when your cash reserves are down and we’re in the middle of a recession, you either won’t be able to get it or it’ll be far more expensive. 

If you anticipate you’ll need access to cash, start working with the bank now to get it.

Next year could be too late.

One of the first things to be cut during a down economy is marketing (and it’s brethren disciplines).

Unless you work for an organization or have clients that understand that a down economy is the best time to invest in marketing, this should be one of the first things you consider.

If you lose your job or clients let you go, what is your plan B?

Make sure you have that figured out now. It’s like insurance. If you have it, it’s unlikely you’ll need it.

In the words of Nike, just do it. 

But It’s Not All Bad

It’s not all bad.

There are definitely benefits in a recession.

When larger companies with budgets for marketing or communications are nervous, they may look for other service providers.

If you have products, services, and solutions that are competitive, they may move from one provider to another. 

Now is also a great time to start to show your executives or clients real results—the kind that matter to the organization versus likes, impressions, and engagement.

If you can attribute the work you do to cold, hard cash, you’ll be sitting in a completely different spot when the accounting team says it’s time to cut some expenses.

The leadership team will know you’re making them money and it’ll make it harder for them to cut your salary or your budget.

We’ve written a ton on how to do this here, here, and here.

You can also find information in our PESO model content

On the agency side of things, this is a great time to audit what you’re doing:

  • What are your goals?
  • Does your team and product service mix match those goals?
  • Do you have expenses you don’t really need?
  • Are you like me and are paying for software you don’t need or no longer use? (I have a problem!)

Trim your own fat and start saving some cash.

We’re creatives, and that means we thrive in the face of restrictions or challenges. 

Four Tips to Prepare for a Recession 

Alright. Recession or not, it’s not a bad idea to prepare for what might be coming. 

Forbes has advice for preparing for a down economy

There are four things the article suggests you focus on:

  1. Manage profitability
  2. Identify and maintain your strengths and best customers
  3. Be ready to decide what you can stop doing
  4. Manage liquidity like you do your profitability

Let’s talk about each of these. 

Manage Your Profitability

When I talk to agency owners for the very first time, I ask them what their profit margin is on the services they provide.

Less than one percent can answer me.

That means 99% of you don’t know how much money you make.

Sure, you may know what you take home, but it’s the rare breed who can tell me what their margins are on gross and net revenue.

Throw in the word EBITDA and you’d think the sky was falling.

This is imperative.

You need to know what your margins are on gross and net revenue AND by client.

I served on the board of an accounting firm until they sold last year and I can tell you that is one thing accountants have on us.

They can tell you exactly where their money goes and they work a plan that is specific to meeting a certain profitability goal.

While I don’t recommend profits over people, you do need to know how much money you’re making.

And, if you want cash to be king, your profit margin should be at least 15%. 

Similarly, you need to know where your money is going.

Once a quarter, I go through our credit card statements (a task I do NOT enjoy) to make sure what we’re paying for is truly necessary.

Doing this isn’t fun, but it’s necessary. 

One of the things I ask our agency owner clients quite a bit is if it’s truly necessary for them to have office space.

Some want it for the stability of having it and others need it because clients require it—and both of those reasons are fine.

But if you have office space and only you and an assistant show up every day, think about going remote.

If that’s something you’re considering, check out episode 38 of the Spin Sucks podcast on how virtual companies work and Melissa Sheridan’s guest article about scaling virtually.

To be profitable, you have to cut the fat and spend money only on the things that help you grow your business.

Know your profit margins and review your expenses and then cut out the things you truly don’t need.

This will help you both be profitable and save the cash you need in a down economy. 

Identify Your Sweet Spot

When you’re jittery about the financial future—or even when you’re starting out or you haven’t met your goals for the year, your first instinct may be to cling on to every client you have to keep revenue flowing.

But if you have customers who are causing you as much grief as profit, or services that are more trouble to deliver than they are worth, firing them now and freeing up some mental space may seem counterintuitive, but it works.

It’s always pretty amazing how much easier things get—and what new business you can bring in—when your pain the butt client is gone.

Once you realize what it frees you up to do, you’ll be mad you didn’t do it sooner.

This, by-the-way, works with colleagues, too.

If someone is a bad apple or they’re not pulling their weight, it’s human nature to want to work with them to try to turn things around.

But when you let someone go, it frees up your brain to focus on other things—and growth almost always comes from that.

There also may be some services you have to let go.

We have a program that I love.

I love working through the program with our clients—and I love the results they get. But we’ve also found that less than 20% of agency owners are ready for it.

It’s far too advanced for the majority of people who sell their services for fees.

Because of that, we may have to let the program go.

It makes me very sad, but I’ve come to realize it’s not the right fit for our agency owner clients. Yet.

I won’t let it go completely and will probably revitalize it late next year or early in 2021, but for now, it’s time to let it rest so we can focus on the things that our clients want and need.

It’s human nature to allow our less-than-ideal clients or bad apple employees or poorly executed services to make a dent in our revenue, but as the economy takes a turn, we all need the time and energy to be flexible so we can react to the things we cannot control. 

Knowing When and What to Quit

This doesn’t mean you need to immediately fire a bunch of clients and institute emergency budget cuts.

But it does mean you should know what would trigger cuts, and what those cuts are going to be if it comes to a down economy.

Hope for the best. Plan for the worst. 

When you look at cutting expenses, ask yourself if you truly need it.

On the personal side, I really love Birchbox.

I’ve learned about new products I never would have otherwise tried and it’s only $10 a month.

But do I truly need it? No. Not really.

I love it, but I don’t need it.

The same goes on the business side.

When we had an office and more than 30 people running around, I provided breakfast and fancy coffees every day and wine on Fridays for wine:thirty.

It was super nice to have and there were many mornings we had hot breakfast together.

That was amazing. But it also wasn’t necessary.

When I asked my team what we could cut without it hurting too much, that was one of the first things they listed.

As you look to cut expenses, involve your colleagues.

At the very least, the leadership team should know cuts are coming—and should be involved in the decision of what to cut.

I personally love to involve everyone because there will be things you think everyone needs and find out that’s not the case.

Likewise, they may have some ideas you hadn’t even thought of.

The most important part is to make sure no one is blindsided.

You are in communications, after all.

Communicate the changes. 

Managing Your Liquidity

The fourth tip from the Forbes article was to manage your liquidity.

This is finance team stuff, but if you’re a leader of any kind in an organization and you have P&L responsibility, you have to manage liquidity just like you do profitability. 

Liquidity is the money you have available to pay for your expenses.

For most of us, that’s cash flow.

One of the first things I make our agency owner clients do is provide financials and a cash flow projection so I can help them manage their liquidity.

It’s impossible to reach your goals without understanding this. 

Review the payment terms you have with your contractors and vendors and start to extend your own accounts payable.

Your clients are going to do the same thing to you so everyone will be rowing in the same direction. 

One of the massive things I learned during the Great Recession was to never rely on client retainers as our only income source again.

At the time, I crafted a goal to add seven revenue sources—one a year for the next seven years.

Sitting here 10 years later, I exceeded that goal—we now have more than 10 revenue sources.

And I’ve been very careful to manage to profitability without exhausting my team. 

We’ll talk more about what that looks like in the next few weeks.

For now, start to think about what you can add as additional sources of revenue:

  • Speaking
  • Consulting
  • Perhaps a published book
  • eBooks
  • Online courses
  • Events

And one last tip: get paid for things upfront.

We will not start work with a new client without 90 days of retainer or the full project amount paid upfront.

This allows us to always stay ahead with cash and it prevents a client from falling behind. 

I also am a big fan of being paid by wire transfer or by credit card.

Of course, wire transfer is preferable because it doesn’t have any fees.

But a credit card is just as good—you can absorb the fees into your cost of doing business.

Even better, you set it up to recur every month so you never have to chase money and you never have to wait to be paid.

Cash is king, my friends!

Collect it, save it, and be ready for a rainy day.

Invest In Yourself 

You may know that I do one-on-one coaching with agency owners.

Everything we’ve talked about in this episode is what I help agency owners do.

Remember the accounting firm I mentioned earlier whose board I sat on before they sold?

I was on their board for 10 years and I considered the board meetings my “swim in the deep end” education on finances.

For the first two years, I sat there like a deer in headlights.

I had no idea what they were talking about or how I could add value. (Thankfully, marketing had its own spot on the agenda or I really would have wondered why I was there.)

During each meeting, I would take notes and then I’d go back to the office and spend time on Google educating myself.

Soon, I was able to not just understand what they were talking about, but how to implement the best practices into my own agency. 

This is where I start with our agency owner clients.

It’s not sexy.

It’s probably dreadful for most.

But recession or not, it’s imperative.

And I’m on your side every step of the way. 

Is a Global Recession Coming?

I wish I could look in my crystal ball and tell you whether or not a recession is coming.

I definitely see some leading indicators this year—some we talked about here today.

But it could also be that people are just being cautious so we don’t experience again what we did just 10 years ago.

There will, of course, eventually be another recession.

But I can’t tell you if it’ll be in 2020 or not for another several years.

The only thing you can do is make sure you’re prepared for whatever comes your way that you cannot control. 

Image by Steve Buissinne from Pixabay

About Gini Dietrich

Gini Dietrich is the founder, CEO, and author of Spin Sucks, host of the Spin Sucks podcast, and author of Spin Sucks (the book). She also has run, built, and grown an agency for the past 14 years. She is co-author of Marketing in the Round, co-host of Inside PR, and co-host of The Agency Leadership podcast.