Dealing With an Economic Downturn: Why Planning and Communication Are Key

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 753 words

When an economic shock hits, the owners who come through best do two things quickly: they plan for several possible outcomes, with cash as the first priority, and they communicate clearly and often with employees, customers, suppliers and lenders. Those habits matter again later, because a buyer will look at how your company handled its hardest year when deciding what to pay for it.

The 2020 shutdowns, and relief programs such as PPP that ended in 2021, were the most recent broad test for many owners, but downturns, supply shocks and the sudden loss of a major customer come in many forms. The lessons below apply to all of them.

Plan for more than one outcome

Nobody knows how long a downturn will last, so plan for several versions of it. A simple scenario plan answers three questions for a mild, a severe and a prolonged case: what happens to revenue, which costs can be cut and how fast, and how long cash lasts. Write the answers down before you need them, because decisions made in a panic tend to cut the wrong things. Revisit the plan monthly while the shock lasts, and drop scenarios that are no longer realistic. The first steps are practical.

• Build a weekly cash forecast for at least the next quarter, and update it every week.
• Talk to suppliers about payment terms early, before you need the flexibility.
• Talk to your bank before any loan covenant is at risk, not after.
• Protect the people and customers who matter most to the company's future.
• Decide in advance what would trigger each cost reduction.

Communicate more, not less

Uncertainty breeds fear, and fear spreads fastest when people hear nothing. Employees worry about their jobs, customers about whether you will still deliver, suppliers about whether they will be paid. A consistent, honest message from the owner and leadership team, repeated regularly, calms all three.

Agree the message with your managers first, so everyone says the same thing. Tell customers what you are doing to keep serving them. Tell employees what you know, what you do not know yet and when you will update them, and then keep that promise. Leaders who speak with one voice keep teams working through difficult months. Lenders deserve the same treatment: a bank that hears about a problem early, with a plan attached, is far more likely to work with you than one that learns of it from a missed payment.

Look for the opportunity

Every downturn creates openings: competitors who retreat, customers looking for a more dependable supplier, good employees available from companies that are cutting back, and sometimes businesses for sale at reasonable prices. Owners with cash and a plan can use a hard year to improve processes, win market share or buy a competitor. Keep any such move modest and funded; a downturn is the wrong time to take on risk you cannot carry.

Bring your team into that search. The people closest to customers often see the openings first. A company that grows out of a downturn tells a far better story to future buyers than one that simply survived it.

How buyers read a difficult year

When you eventually sell, buyers will examine every year in your financial history, including the bad one. A dip is not fatal if it is explained. Document what happened, what you did and how quickly results recovered. One-time costs, and one-time income such as grants or forgiven loans, are usually adjusted out when buyers calculate adjusted EBITDA, the earnings figure most valuations rest on, so keep clear records of both.

A buyer who sees a company that cut costs sensibly, kept its customers and recovered will often trust its numbers more, not less. Our answer on how buyers value a company with strong revenue but inconsistent profits covers this in detail.

Keep monthly statements current throughout. A buyer reviewing a hard year will want to see month-by-month results, not just the annual total, to judge when the recovery began and how durable it is.

How MDR & Associates helps after a hard stretch

We recast the financial statements of every company we take to market, which means explaining unusual years, adjusting for one-time items and presenting the trend buyers should see. A business valuation shows how a recent dip affects value today. Owners who want to strengthen a company after a difficult period before selling can use our pre-exit consulting. To see how buyers would value your company now, start with the free valuation snapshot.

Where this fitsExit planning for Texas business owners →

Questions owners ask next

Should I delay selling my business after a bad year?

Often, yes, if the business is recovering and you can afford to wait. Buyers pay for earnings they believe will continue, and one or two strong years after a dip rebuild confidence. If the decline is permanent, or your circumstances require a sale now, a clear explanation and a realistic price matter more than timing.

Do forgiven loans or grants count toward my company's earnings?

Buyers generally treat them as one-time items and remove them when calculating adjusted EBITDA, because they will not recur. Keep documentation of what was received and when, so the adjustment is easy to verify. How they were taxed is a separate question for your CPA.