During periods of economic volatility, small businesses are especially vulnerable to headwinds. They may lack the large cash buffers and access to financing that larger enterprises can tap during challenging times.
The current economic climate has meant weaker consumer spending, lower demand for goods and tighter access to credit, all of which are direct threats to the growth and ultimate survival of many small businesses. To successfully navigate complex economic landscapes, small businesses that lack armies of consultants and powerful boards of directors often look to their accountants for resilience, strategic thinking and guidance to help them weather the storm and best position themselves for recovery and stability.
The role of an accountant is especially important for small-business owners who typically manage various functions: sales, marketing, R&D, human resources and beyond. Many small-business owners even juggle other jobs while trying to grow their business. In fact,
So, what counsel and guidance can accountants offer their small-business clients to help them maintain a financially healthy business as they deal with an economic downturn?
Real-time tracking and forecasting
A large part of an accountant's role is providing thoughtful analysis of the financial health of a business, which is especially important during periods of economic uncertainty. Of course, delivering a thorough understanding of a small business' financial position by tracking statements, balance sheets and cash flow can give an accurate read on a business's health. And when economic headwinds hit, cash flow becomes king. That's why savvy accountants leverage technology to review and assess a client's cash flow in real time (or at least near real time). This includes not only cash flowing out, but, importantly, cash flowing in. When the economy hits a speed bump, an owner needs to know if customers are paying their invoices in a timely manner so that the business can pay its employees, vendors, lenders, etc. If not, can the business alter payment terms or invest in a collections strategy to accelerate cash flow?
Having access to up-to-date, accurate data also applies to an accountant's ability to fill another vital role: providing dependable forecasts. A forecast is only as strong as the data underpinning it, so when an accountant can utilize a fresh stream of client information, they can create forecasts using metrics such as revenues and expenses versus budget.
These forecasts can include a positive view and a negative view. The former focuses on growth and how the business can invest its up-trending revenue. The latter should zero in on revenue dropping and what can be quickly reduced. The key for any small company to push through uncertain times is to remain nimble, so smart forecasts and scenario planning are essential to give business owners options in any potential scenario.
Another important factor is access to financing. Following recent regional bank collapses and rising interest rates, small businesses are facing a credit crunch. For example, the percentage of small-business loan applications approved by large banks fell to 13.5% in April 2023, down from 15.1% in April 2022,
Forecasting is especially necessary during tight credit conditions, as it helps small-business owners create a plan for both looking at alternatives for financing to grow the business, as well as the business' ability to service its current debt. In today's landscape, creditworthiness is absolutely key to a small business' future success. Accountants can help their clients remain creditworthy by forecasting a clients' ability to pay its bills in a timely manner, grow receivables and collect them expeditiously.
Cost-reduction strategies
In the event that a recession hits a small business hard and an accountant's negative forecasts become reality, this is when an accountant and owner can work hand in hand, reviewing significant data to make educated decisions about where costs can be reduced with minimal impact on existing operations. For example, with technology delivering full, up-to-the minute details on accounts payable, an accountant can help an owner determine where they can try to renegotiate terms and conditions with vendors and lenders to create breathing room and lessen the drain on cash flow. This strategy could include bargaining with vendors for longer-term contracts in exchange for fixed prices that provide the small business with more certainty during times of economic volatility.
Accountants can also work with small businesses to sharpen their inventory management strategies. Again, technology comes into play. Today's leading small-business accounting platforms enable an outside accountant to view changes in a client's inventory as they occur. This enables an analysis of the profitability of inventory items in order to determine opportunities for cost control and reduction.
There's no doubt that accountants play a crucial role in guiding small businesses during periods of economic uncertainty. Their expertise in financial analysis, forecasting and strategic planning, coupled with their ability to identify areas for cost reduction, provide valuable insights that inform current and future decisions for small-business owners. As economic conditions remain uncertain, now is the opportunity for small businesses to lean into the knowledge provided by their trusted accounting advisors in order to best position themselves to survive — if not thrive — in the face of financial instability.
