How to prepare your clients, and your business, for a recession

3 mins readLast updated January 20, 2023by Kate Morgan

Most finance experts are forecasting that, within the next 12 months, the US economy will be in a recession. There are several steps financial advisors can take to protect their finances and their clients’ finances in the case of a recession. This article will explore those steps, detailing how to prepare for and financially survive an economic crash.

How likely is a recession?

“Incoming recession” is probably one of the phrases most feared by US business owners, from the finance industry to the fishing industry.

In the US, the probability of a recession is projected a year in advance by assessing the difference between ten-year and three-month treasury rates.

For example, while the economy grew by 5.5 per cent in 2021, it slowed by 0.9 per cent in the second quarter of 2022.  

As things stand, how likely is a recession?

Unfortunately, the answer is highly likely. The consensus among experts is that the US economy will be in a recession within the first few months of 2023, with The Conference Board placing the percentage likelihood of a recession at 96 per cent. 

Protecting and supporting your clients during a recession

The news that a recession is highly likely is, of course, worrying and unsettling.

However, there are still many things that financial advisors can do to mitigate the effects on clients, provide the valuable reassurance they’re seeking and protect their assets.

Since the US will probably be in a recession by May 2023, it’s a good idea to start preparing yourself and your clients now.

Ensure that you are:

  • Open, communicative and honestIf you don’t take the extra time to make a client feel comfortable in the face of all this uncertainty, they’re likely to look elsewhere for help. Take the time to communicate honestly about what’s coming, striking a balance between realism and optimism and offering total transparency  

  • Ready to advise on budgetingSaving money effectively becomes more of a priority during times of economic downturn. Many of your clients will be thankful for a professional opinion on budgeting and reducing spending following possible negative eventualities like job losses and more. Be ready to answer lots of questions and offer reassurance  

  • Encouraging early debt elimination effortsIf such a thing is possible for your client, eliminating outstanding debt before the situation gets too rocky is very important. Be prepared to suggest that clients cut back to lower their debt and improve the longer-term outlook of their future financial plans once the recession hits 

  • Proactive, with lots of questions to askThe more you ask your client, the more you’ll be able to evaluate their preparedness for what’s to come. Ask about their financial plans, check in on their risk tolerance levels and make suggestions based on the picture they paint using your questions 

Protecting your financial advice business during a recession

In a recession, it’s imperative to be hyper-focused on what you already do well as a business owner.

All the aspects that have been helping your company thrive already need to be amplified.

That’s easier said than done though, and you’ll likely experience a drop in clients (and, therefore, revenue) when the recession arrives, even if you prepare incredibly effectively.

To push back against the financial hit, consider: 

  • Offering reward and discount programs to make existing customers feel valued, essential and supported in difficult times  

  • Diversifying your offerings to include services at lower price tags, making your business accessible to a broader client base 

  • Paying close attention to your cash flow month to month, creating realistic budgets and planning spending carefully in the next year and a half (with marketing costs factored in) 

  • Strengthening customer relationships by listening to client concerns, personalizing services and giving 110 per cent using many of the methods outlined in the previous section 

  • Paying off any debts that may cause problems if you struggle with cash flow during the recession 

  • Optimizing your workforce through outsourcing or automating, ensuring that the right employees are engaged in the right tasks at the right times  

What can history teach us about recessions?

When studying all the major recessions in the history of the US, it’s clear that there have been many different contributing factors each time.

In 1929 and 2008, and likely in 2023, the conditions for a recession were caused by a fusion of political, cultural and behavioral problems, which conspired to throw markets across the entire world into jeopardy. 

There are definitely lessons to be learned from history, though none of these lessons are now likely to prevent the upcoming recession.

For example, businesses willing to adapt, innovate and upskill have long been better equipped to pass through a recession phase unscathed (or at least unbroken). For example, Netflix survived the 2008 recession by partnering with other popular brands like Xbox and increasing its subscriptions as a result.  

Finding forward-thinking ways to appeal to new and existing customers is a must. On the other hand, taking drastic action is a bad idea.

Making rash decisions during a recession is one of the best ways to reduce your profits in the long run, so taking stock and managing your spending more slowly is a better idea.  

Content writer

Kate Morgan

Kate has written for leading publications and blue chip companies over the last 20 years.