Moody’s Analytics has already put recession odds at 49% before the Iran war, and now warns that figure could cross 50%. Meanwhile, Goldman Sachs now sees a 30% chance over the next 12 months, as a cooling labor market collides with the external shock of higher oil prices.
When a downturn hits, small businesses have the shortest runway and take the hardest hit.
“Small businesses don’t have the financial cushions that large corporations do. When recession hits, revenue drops within weeks, credit lines tighten, and customers start stretching payment terms. For small businesses, a recession is an existential threat,” says Raj Bhaskar, CEO of embedded accounting solutions provider Tight and a small business finance expert.
And that vulnerability, Bhaskar says, is exactly what separates the businesses that survive from the ones that don’t.
“Everyone assumes being recession-proof means being in the right industry,” he adds. “In reality, the businesses that make it through have real-time visibility into their numbers, enabling them to act fast. A war-driven oil shock hits small businesses in slow motion, and survival comes down to who saw it coming first.”
Recommended Articles
With recession odds climbing, Bhaskar says small businesses must act now, starting with these five steps:
1. Audit every cost line touched by oil prices this week: Oil is around $100 a barrel and could worsen if the Strait of Hormuz stays closed. Freight, packaging, and logistics costs are already moving. If you haven’t reviewed your cost base since February, you’re working with the wrong numbers.
2. Assume the disruption lasts longer than you think: Plan your cash flow for six months of disruption, not six weeks. The businesses that model the worst case and get the best case come out ahead. The ones that do the opposite don’t get a second chance.
3. Contact your key suppliers before they contact you: Suppliers are absorbing higher input costs and will pass them on. The only question is when. Lock in current pricing or negotiate terms this week, while you still have leverage.
4. Watch your receivables more closely than your revenue: The Iran war shock reaches small businesses first through slower customer payments, not cancelled orders. If your debtor days are creeping up right now, that’s your early warning sign.
5. Cut discretionary overhead now, not later: The businesses that survive downturns make deliberate cost cuts while they still have cash, not when they’re forced to. Review every recurring cost not directly tied to revenue and make the call before the situation makes it for you.
“A recession doesn’t treat all businesses equally,” Bhaskar says. “It punishes the ones flying blind and rewards the ones who saw it coming. Right now, visibility is the entry fee for survival.”
Photo credit: RgStudio/iStock
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
