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Preparing for a Possible Recession

Charlie Scharf says there is “no question” we’re headed into an economic downturn and likely a recession. Jamie Dimon says to “brace yourself” for an economic hurricane.  Elon Musk has a “super bad feeling” about the economy.  (Even though Elon thought we’d have zero Covid cases by the end of April, he may be more accurate this time.)

The Federal Reserve is actively raising interest rates to try to curb inflation.  Jerome Powell says he hopes we can avoid a recession, but certainly the Fed can’t guarantee that.  The White House finally acknowledges that combatting inflation is its number one priority.

The stock market is tanking.

Gas is over $5.00 per gallon.

Even before all this recession talk gained momentum, and based primarily on the end of Covid-era free money and continued supply chain issues, many were predicting that delinquency rates would soon rise.  That would lead to more consumer and commercial collections and, ultimately, bankruptcies.  But it hasn’t yet materialized.  May 2022 saw a 10 percent decrease in bankruptcy filings as compared to May 2021.  The unemployment rate is a relatively healthy 3.6%.

Nevertheless, now is the time to check your individual or business economic health.  Are you default alive, as coined by Paul Graham?  Or are you on a trajectory to liquidation—default dead?

Take steps to increase your liquidity.  Reduce discretionary spending and draw down credit lines.

Who owes you money or will over the next several months? Review the financial health of your clients and customers.  Have your receivables gone from 30 to 45 or 60-day pays? Strengthen those relationships with incentives and convenience for timely payment.

Identify your key suppliers, assess their financial health, and create a backup plan or re-sourcing option to protect your supply chain as much as you can.

Of course, none of us want to go through a recession.  But by taking the right steps now, we can make it less painful.  The attorneys of Dalton & Tomich are ready to help.

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