It’s no surprise that a looming recession is on business leaders’ minds. In fact, one recent CNBC survey (that questioned 23 major CFOs) says more than 80% of respondents expect a recession in 2023. But how exactly do you prepare for one?

Meet Candy Valentino, a serial entrepreneur and CEO of Founders Organization. Candy started her first company in 1999, so she’s no stranger to running a business amidst a recession. And today, she leverages her 24 years of experience to help other business leaders succeed.

Candy recently joined us at Playbook 2022 to discuss operating a business during economic downtimes. And in this value-packed session, she shares five ways to prepare (and even prosper) during an economic recession.

1. Focus on profitability.

When Candy started her first business, she had no college degree or corporate background. But she did have a strong understanding of profitability and building wealth. “I figured out how to live beneath my means and invest [that money] into diversification,” Candy shared.

This focus on profitability helped Candy forge through the uncertainty of the 9/11 terrorist attacks and the 2008 real estate crash. And today, she believes a similar focus can help any business leader weather the looming recession ahead.

“Nothing happens in the country's economy that will ever be more important than what's going on in your personal economy.”
<blockquoteauthor>Candy Valentino, founder and CEO of Founders Organization<blockquoteauthor>

To understand your personal economy, Candy suggests going back to the basics. “[You] need sales to build a business, but you need profits to sustain a business,” she shared. That means you must either increase sales or decrease expenses to make a better profit.

2. Know your numbers.

For Candy, it’s impossible to find profitability during hard times if you don’t know your financial standing. “Take the time to really understand the numbers because that's the core data of how your business is actively doing,” she shared.

To do that, Candy suggests holding a regular “state of the union” meeting — where you review and reconcile your profit and loss statement, balance statement, and cash flow statement. “Print [these statements] from your bookkeeper and review [them] against your bank reconciliations.”

When you deeply understand your finances, you know exactly what you’re spending and where you’re spending. That way, you can proactively find ways to spend less, decrease expenses, and improve profits (that will keep you going when times get rough).

“What you do [during] the good times [will help you] persevere through the bad times.”

3. Cross-sell or upsell your existing customers.

During economic downturns, Candy suggests looking for ways to cross-sell or upsell your existing customers. And she says it’s all about understanding the current state of your customer base and pivoting your business quickly to meet their needs.

“In 2001, we created a less-expensive product line to meet people where they were,” Candy explained. At the time, they feared customers would jump ship and find a cheaper alternative elsewhere. So they created their own version to keep customers engaged instead.

“If you lose a customer due to a pricing or customer service issue, it's much harder to get them back. [As a business owner], I would be looking for another product or ancillary revenue stream right now to [keep my customers] engaged.”

To leverage this tip, Candy suggests predicting how your customers’ needs will shift in the upcoming year. For example, will they need a less-expensive product to compensate for inflation elsewhere? Or will they need an additional service to support their economies?

4. Get clear on your path forward before leading others.

There’s a lot of uncertainty when it comes to recessions. But Candy believes business leaders must do their best to eliminate any confusion for their employees. “The owner [must] deepen and develop [their leadership] skills so [they] can lead people through this great time,” she explained.

That means you must get clear on your path forward and communicate that plan confidently. Otherwise, your team will question their future stability and falter when any obstacle arises. To combat this, Candy suggests shifting your mindset and helping employees do the same.

“View [economic downturns] as an opportunity, and that's exactly [how] your team will view it.”

5. Invest 20% of your profits toward building wealth.

Finally, Candy suggests taking some of your profits and leveraging that money for your long-term wealth. “At the end of [every] month, I want you to invest [20%] of your profits,” she told us. That could mean putting it toward a Roth IRA, retirement plan, real estate, or stocks — it’s up to you.

But if you can’t take that much money from the business, Candy says it’s an indicator that you’re overspending. “If you're not paying yourself and building wealth first, you didn't create a business ― you created a job for the rest of your life,” she explained.

In other words, you need to go back to your finances (during your state-of-the-union meetings) and find places where you can cut back. That way, you can prioritize your personal economy and set yourself up for the future — no matter what recessions come along the way.

Recessions are part of our economic cycle. But if you can take Candy’s back-to-basics advice, you can prepare and forge through any upcoming financial storm. Because it’s not about what happens during a recession, it’s how you respond and react.