The CFO’s Guide to Preparing for an Economic Downturn

In business, the only certainty is uncertainty. Whether it’s a recession, supply chain disruption, or sudden market shift, businesses that aren’t financially prepared often feel the hardest hits. As a fractional CFO, I help business owners create strategies to survive and thrive in any economic climate.

Here’s how to get your business financially ready for a downturn.

1. Build a Strong Cash Reserve

Cash is king — especially when sales slow down. Aim to build a cash reserve that can cover at least 3-6 months of operating expenses. A CFO can help you set a target based on your business's unique risk profile and industry trends.

2. Stress-Test Your Financials

Run what-if scenarios on your financial models:

• What happens if revenue drops by 20%?

• Can you still cover debt obligations?

• How fast can you cut discretionary spending?

Stress-testing helps you make proactive decisions instead of reactive ones.

3. Strengthen Customer Relationships

In downturns, loyal customers become your lifeline. Focus on improving customer retention and offering value-added services to keep them engaged. A CFO can also analyze your customer profitability and help you double down on your best segments.

4. Tighten Cost Controls

Review all fixed and variable expenses. Consider renegotiating leases, reducing non-essential spending, and finding operational efficiencies. Fractional CFOs often conduct expense audits to reveal hidden savings.

5. Secure Financing Before You Need It

It’s easier to secure credit lines, loans, or alternative financing options when business is good — not when you’re desperate. A CFO can position your financials to appeal to lenders and investors before turbulence strikes.

6. Diversify Revenue Streams

Over-reliance on one product, customer, or market is risky. Work with your CFO to diversify income streams or explore new market segments.

Final Thoughts

The best time to prepare for a downturn is before it happens. With a proactive CFO by your side, you can navigate uncertainty with confidence.

Need help recession-proofing your business? Schedule a free call with 5S CFO today.