Recently, several “billionaire investors, former Federal Reserve officials, and now even investment banks” such as Deutsche Bank have been predicting that “the economy may hit a wall in 2023.” Bill Gates warned of a coming “economic slowdown” resulting from an unfortunate convergence of factors: pandemic ripple effects, war in Ukraine, supply chain problems, and alarmingly high inflation, among others. Elon Musk told the All-In summit this week that the U.S. is “probably” in a recession and could face tough going for the next 12–18 months. GDP numbers for Q1 back up this claim, and when Q2 numbers come out later this summer we’ll know for sure.
But whether we end up in a capital-R Recession or not, the evidence suggests that we are facing a pretty significant economic downturn. With such a downturn comes anxiety and downward pressure on all kinds of businesses. This will, of course, affect CPA firms, as they and their clients feel the squeeze.
Let’s talk about the immediate pain points your firm will face in an economic downturn.
Cash crunch. Will clients still pay their invoices (on time)? Will capital still be readily available to invest in growth? Even if you’re planning to raise your rates, will inflation continue to grow at a faster pace than those new rates can even cover?
Pressures for growth. Your firm has talked about raising bill rates for months, or even years? 2022 was supposed to be the year, but will clients accept it? How do you measure the risk/reward? And how can you sustain growth if the effects of the Great Resignation continue?
New risks. Software and automation companies are increasingly encroaching on certain service lines (ex: CAS). In difficult economies these technology companies often flourish even more; how can you compete (and/or leverage them to your benefit)?
So What Can Your Firm Do To Be Recession-Ready?
1. Shore up your cash flow.
Cut unnecessary expenditures–this should be a given. But beyond basic cost-cutting, your firm should also be hunting for ways to expedite cash flow coming in your door. When you deliver work to clients but don’t collect the payment for 3 or even 6 months, that’s cash that should be in your firm’s coffers. That’s why Aiwyn has developed a revolutionary AI-powered tool to shorten the work-to-cash cycle.
Another piece of the cash flow puzzle is getting smarter about how you predict the future. Use data to model out your expected cash flow and build scenarios that help you make more informed decisions going forward.
2. Review and revise your book of business.
Here’s another way data can really help. AI can actually risk-rate clients (down to individual projects and invoices) to help you understand which clients might be holding your firm back. Which clients are producing the thinnest margins for your firm? Which ones are consistently late paying your firm’s invoices? Conversely, which client relationships yield good margins and prompt payments? Could there be opportunities to expand on those client relationships if only you could devote more resources to them?
When facing economic headwinds, it’s critical to ask: Who are your “ride or die” clients? Who do you want with you as you weather this economy, and look toward the future?
Data can help you answer these questions. Now is the time to do a holistic book-of-business review, after which you might choose to disengage from some clients and consider raising prices on others. The goal is to invest in the clients that will propel you forward, through this economic slowdown and out to the other side.
3. Invest in the client experience. Once you decide which clients will anchor your business through the storm, invest in making sure you keep them around. Don’t take them for granted; they’re also likely in a position of belt-tightening and consequently could be scrutinizing their spending on accounting and audit services. Are you working tirelessly to delight your clients and keep their business? (Note: delighting your clients and keeping their business should be a perennial priority, not just a recession-survival tactic!)
Strive for great service delivery, seamless interactions with your firm, and added value. This is another area where tech can be incredibly helpful: where possible and financially feasible, you can implement solutions like Aiwyn’s Intelligence-Based Billing™ that simplify the client invoicing and payment experience–all while bringing cash in your firm’s door faster (see point #1 above).
4. Treat your talent well.
Just as you’ll want to invest in the client experience, the employee experience really matters in times like this. You will want the best-in-class people on your team through this and other downturns. Recruiting and retaining top talent should always be a high priority for firms of every size, but in the face of an economic downturn it will be especially vital to have that top talent on your team.
Investing in your people via tangible benefits won’t be easy when the economy is contracting and everyone is tightening their spending. Per our point about cost cutting above, your firm might already be considering freezing pay increases and pressing “pause” on new hires. Maybe layoffs are on the table. Firms of all sizes will need to look inwardly at ways to free up capital as we head into the probable slowdown.
But there is one other, more intangible, way to invest in your employees: the type of work you’re asking them to do. Your best and brightest people–particularly those in the Millennial and Gen Z demographics–don’t want to slog through hours of inane administrative work each week; they want to spend their time doing creative, human, fulfilling work. They want to solve big problems. They didn’t sign up to work for their parents’ accounting firm; they want to work for the Firm of the Future. How can you free them up to do this high-level work? By leveraging technology to take the rote, time-consuming, administrative work off their plates. (Added bonus when AI-powered technology helps your firm run more efficiently and get cash in the door faster!)
Financial Health: A Priority for the Good Times and the Bad
Implementing these practices will strengthen your firm’s financial position no matter the economic climate. Whether this impending economic downturn ends up being a blip on the radar or a major recession the likes of which we haven’t seen since 2008–or something in between–do what you can to bolster your firm’s financial health now.