Inflation remains elevated. Recession talk looms in headlines. This has businesses and employees alike worried about the months ahead. ¹

But the past few years have provided business owners with the lessons they need to prepare, says Amy Friedrich, president of Benefits and Protection at Principal^®. One is the need for long-term financial planning that gives your business the flexibility to handle volatility.

These five steps can help.

1. Establish a crisis plan.

“Business owners—small business owners in particular—are so often absorbed in the moment because of the all-consuming nature of their work,” Friedrich says.

Take a minute to pause, she says. Ask yourself: What insights have I gained over the last few years, and what do I want to do differently moving forward? Would you:

One thing more than half of business owners do not plan to do? Reduce workplace benefits.¹ This could serve you well for retaining your strongest talent when you need them the most: Employees are already boosting their emergency funds and adjusting their budgets—and half say they will not decrease their retirement savings rate if a recession hits.¹

And perhaps most importantly: Cultivate a support network to lean on when business is going well—and when things get bumpy.

“Invest the time to build up connections in your local or regional business community,” Friedrich says. “As you take care of your finances and employees, you can benefit from the support of your peers.”

2. Create a business succession plan.

The first step to a successful business succession is answering the who, what, and when: Who do you want to sell your business to, what’s your business worth, and when do you want to sell?

Set a realistic timeline and lock it into place through a well-funded buy-sell agreement.

A solid agreement will:

Give yourself time to adjust. Those extra years may allow you to balance the right successor while ensuring you’ll have ample income after you leave the business.

3. Get a business valuation regularly.

This crucial number determines lines of credit, acceptable debt load, and even the timeline for selling your business.

If a surprise event forces you to sell, you or your successors—or both—could end up frustrated if the value of the business is a shock.

“Knowing the value of the business is the foundation of planning,” says Nate Schelhaas, senior vice president of Benefits and Protection at Principal. “A business owner can have all kinds of great ideas, but they’re worthless if the owner can’t put solid numbers to what they really mean for both owner and buyer.”

Not sure where to start? Reach out to your financial professional who can request an informal valuation from Principal.

4. Connect with a trusted financial professional.

Businesses in nearly every industry rely on technical experts—CPA, attorneys, etc.—for essential functions. The role of financial planning, especially during economic volatility or a downturn, is part of this outside expertise to help your business succeed.

As you’re running the day-to-day business, a financial professional can offer support for long-term planning.

The most critical component: Trust, says Friedrich. “It’s your job as a business owner to go through a deliberate process when you look for a financial professional, and it’s their job to earn your trust.”

When seeking the right medical doctor, you likely scrutinize and screen your options. Do the same with financial professionals—for the health of your business and personal financial future.

5. Build up cash reserves.

Stockpiling cash in the boom years may help you avoid risking your personal finances by, for instance, taking out a second home mortgage for your business. Nearly one-third of business owners have already set aside reserves in preparation for a potential recession, according to Principal research.¹

of business owners have increased cash reserves to prepare for a potential recession.¹

The old rule of thumb was a six-month cushion. But the past few years have shown us that crises can last far longer than that. Everything businesses have endured is an argument for doubling down.

“The worst-case scenario?” Schelhaas says. “You have a year’s worth of cash reserves and don’t need it.”

If you must tap into other emergency cash, “evaluate all the sources of cash at your disposal and in which order it makes sense to use them,” Schelhaas says.

One common forgotten source is the cash value of a permanent life insurance policy. While the main purpose of life insurance is to provide a death benefit, the cash value in some permanent life insurance policies can be used during your lifetime.

What's next?

Get timely ideas from businesses like yours.