Soft Landing Strategy: More Opportunities, Less Debt

The Fed and many small businesses are increasingly expecting a soft landing without a recession. If you are looking to maximize your small business opportunities during a soft landing, we recommend the following four changes to your business strategy:

  1. Monitor funnel KPI’s with cautious optimism.
  2. Invest in growth but remain cash flow positive.
  3. Lean into B2B markets.
  4. Avoid excess debt.
  5. Groom your talent.

Monitor funnel KPI’s with cautious optimism.

An old Greek fable called “The Spendthrift and the Swallow” tells of a poor, foolish man who saw a swallow fly by, assumed winter was over, and sold his coat for food. Days later when winter returned, the man shivered and cursed at the dead, frozen swallow for tricking him.

Two months of favorable economic indicators do not guarantee a soft landing, just as one swallow does not guarantee the end of winter. Overplaying the recovery will leave you with no one to blame but yourself, just like the spendthrift cursing at the frozen swallow. On the other hand, waiting until the soft landing is a certainty means missed opportunities, so you should proceed forward with caution.

Your best gauge of the recovery will be top-of-the-funnel KPIs like website visits, sales inquiries, interested responses, or qualified leads. Best practice is to review funnel KPIs weekly with your management team to gauge the strength of your market.

Invest in growth but stay cash flow positive.

Avoid overplaying the soft landing by investing only in growth you can support with free cash flow. That may mean hiring one employee instead of two, or moderating your advertising spend below your team’s goals. A moderate approach to risk buys you flexibility in case of an economic downturn, especially if you remain cash flow positive.

Businesses that are cash flow positive are free from capital constraints and won’t be easily forced into a desperate situation. Use your operating forecast to analyze investments and project free cash flows.

Lean into B2B markets

Lower inflation means less consumer demand. Mitigate this risk by focusing on B2B sales, where rising business confidence will increase their spending in Q4.

Avoid excess debt

Debt is very expensive now and banks are pickier about who they lend to. The good news is the markets are forecasting an interest rates drop in 2 years, so you should hold off on major capital investments that require taking high-interest loans.

Lower debt levels also promote solvency and stability during these uncertain macroeconomic times.

Avoiding debt entirely would be a mistake, as most healthy businesses employ moderate debt levels. But now is not the time for major recapitalizations (except to get out of subprime debt) or large long-term loans.

Groom your talent

The softening labor market means employers can afford to be pickier with their team. Now is a good time to fill voids (if your cash flow supports hiring), replace under-performers, or level-up your team’s skillset.

Leverage professional support

Fractional CFOs experienced in downturns and rebounds are a critical part of any small business team, especially during a soft landing. Schedule a call with us to learn more about how part-time CFOs can help guide your business to success.

This article was written by a CFOshare employee with assistance from generative AI for rhetoric, grammar, and editing. The ideas presented are a combination of the author’s expertise, original ideas, and industry best practices.

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