b'ACCOUNTING COLUMNHOW TO PREPARE YOUR OPERATIONS FOR A RECESSION BY BRIAN LAVECK, CPA, CA, MNPY O U R G U I D ET O S U R V I V I N GA N DT H R I V I N Gith inflation hitting almost$30 million of revenue. With inflation atsignificantly reduce dependence onW 40-year highs in Canada, manypresent levels, its entire profitability will belabour access.observers worry a recessionwiped out within 18 to 24 months.is looming. Businesses need to startPRIORITIZE HIGH-MARGIN planning to navigate a potential economicThe first step is to determine your cost slowdown from a competitive andand margin drivers. Inflation is impactingPRODUCTS AND SERVICESconfident position. everyone and everything, influencedLook for efficiencies in your business. largely by soaring fuel prices, surgingFocus on products and services that The longer you have to plan, the betterdemand and geopolitical uncertainty. Asprovide you with the best margins, and prepared you will be. This article outlinesChina steadily recovers from the effectsbe willing to compromise on those with key factors to consider so you canof COVID-19, rising industrial demandhigh overhead and low returns. You may successfully address challenges and will likely put more pressure on supply,need to rethink how or if you want to go seize opportunities. demand and prices. to market with these products and services at all.FOCUS ON MAJOR PRIORITIES Remember that theres a straight line between your predicted costs andConduct a rationalization exercise to Revisit your business models and anypredicted profits. Think about how toensure youre maximizing your margins. assumptions you have made about theincorporate higher transportation and rawStart with products and services that economy. Sit with your top decisionmaterial costs into your pricing. Are yourcontribute less than 20 per cent of your makers to estimate how a recession couldmodels still relevant? Note that there willoverall revenues. Is it worth placing large negatively impact your business. Studybe a delay between any change you makeorders or having a large inventory when areas such as your gross margins, netand its eventual impact. The longer yourconsumer spending drops?margins, sales, various channels, marketscycle times, the faster you need to react.and customer base. The pandemic has moved businesses Finally, think about the labour shortage infrom a just-in-time model to a just-A six- to seven-per-cent inflation rateCanada. How could the countrys agingin-case model. This could create greater will erode earnings regardless of yourpopulation and accelerated retirementsrisk in a market slowdown and delay performance over the last year. Forimpact your organization? There isnt aturning your inventory to cash. Consider example, consider a healthy and profitablesimple solution. It will require differentshelving items that take longer to sell company that generates a 10-per-centstrategies, including leveraging AI andand focusing on those that sell quicker. earnings before interest, taxes, depreciationautomation for roles typically held byA supply chain evaluation can help you and amortization (EBITDA)or anpeople. Strategic pivots to automationidentify opportunities to shorten lead average of $3 million of profit on can help you improve productivity andand procure-to-sale cycle times, which 20 SOUTHERN INTERIOR CONSTRUCTION ASSOCIATION'