How to Recession-Proof Your Consulting Business Step-by-Step

blog article Jun 02, 2023

Estimated time to read: 7 minutes

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What you will learn in this guide

You’ve likely read the news. There have been large-scale layoffs at major consulting companies, including KPMG, Deloitte, Accenture, McKinsey, and more. 

The articles written about these layoffs use phrases such as “soft market”, “anticipated waning client demand”, and “recalibrating amid concerns about a slowing economy.”

You’re likely worrying that consulting isn’t recession-proof and that you’ve chosen a vulnerable business model.

The question for you as an independent consultant is, given these layoffs and the overarching news, should you be worried about a recession as an independent consultant?

The answer is yes and no. 

Let’s start with why you shouldn’t be worried about the recession as an independent consultant. 

Market downturns and recessions are an opportunity for you as an independent consultant.

You’re uniquely positioned to help your corporate clients solve problems in these turbulent, highly-changing times.

You’re nimble.

It’s much easier for you to pivot to focus on the highest value challenges your ideal clients are currently facing than it is for large consulting firms.

So, you have all the advantages that larger consultancies do not. 

Now, the flipside. 

Why should you be worried about a recession for your consulting business?

You should be worried about the recession if you don’t have all your ducks in a row as a consulting business owner. 

If you’ve been sloppy about running your business, including inconsistent business development, haphazard pricing, and taking work that comes to you, now is the time to up your game as a consulting business owner.

If you’re like most independent consultants, this isn’t a surprise.

You know you need to implement consistent, effective business development routines. 

But, you haven’t made it a priority.

Now is the time.

In this article, I’ll walk you through the steps to recession-proof your consulting business so you don’t have to worry about a “soft market” or “waning client demand” like the bigger consultancies are.

 

How can independent consultants prepare for a recession?

The best way to prepare for a recession as an independent consultant is to ensure you have a strong consulting business in place and that it’s supported by an effective consulting business mindset routine. 

When you recession-ready your consulting business using the strategies I share in this article, you’ll be able to turn a recession into a competitive advantage for your consulting business.

How do I know if my consulting business is recession-proof?

The best way to know if your consulting business is recession-proof is to take the recession readiness assessment. After answering 15 quick-hitting questions, you will receive a personalized assessment, as well as the specific areas of your business to focus on so you thrive during the recession. You will also receive a straightforward Independent Consultant's Recession Readiness Checklist, so you can easily put these insights into action.

Key indicators that your consulting business is recession-proof include being prepared financially, being on top of your consulting business metrics so you have early warning signs and can pivot, having predictable business development systems in place, and that you’ve cultivated a recession-proof business owner mindset.

How to make your consulting business recession-proof step-by-step:

As an independent consultant, it’s essential to be able to deal with market downturns, anticipated recessions, and recessions. Let’s make sure you’re ready for any economic downturn, either anticipated or unexpected, that comes your way so your business thrives and is set up to take advantage of the market rebound.

There are five (5) steps to recession-proof your consulting business.

Quite frankly, these four steps are best practices regardless of the market condition. Now is the best time to put them in place.

 

Step 1: Get your financials in order

The first step to recession-proof your consulting business is to ensure your financials are in order. 

Specifically, you’ll want to catch up on outstanding receivables so you aren’t in a position where your clients owe you money. 

Going forward, consider invoicing at the inception of your work, for example, 50% upfront) instead of invoicing after the work is done (e.g. invoicing based on time worked).

Also, make sure your cash flow forecast is up-to-date. This means you know how much money you will be invoicing based on your signed client contracts, and have a clear picture of what money will be flowing into your business account.

It’s surprisingly common for consultants to lose track of their cash flow forecast, especially for consultants who work on multiple concurrent projects. To avoid making this common mistake, ensure you have a bi-monthly routine to update your financials, including budgets, accounts receivable, and forecasts.

 

Step 2: Increase your consulting business reserve

It’s common for consultants to treat their business bank account like their own personal checking account. 

What does this look like?

It means that you’re seeing the money coming in and thinking it’s a paycheck to you.

And, when you think about your business money in that way, it can be easy to overlook the range of business requirements for the revenue coming into your business.

For example, it’s important to maintain a reserve so you can pay your taxes. 

In addition to setting aside money for taxes, it’s important to save a reserve in your business of 3-6 months of operating expenses, including your owner draw/salary.

This reserve will mean you can continue to pay yourself even when you don’t have client payments coming into the account.

The reserve will also free you to make sound business decisions because you’re not desperate for cash flow and worried about a slower pipeline, a dip in your close rate, or a longer sales cycle. 

 

Step 3: Turn a recession into an opportunity for your consulting business

A recession can open up opportunities for your consulting business in several ways.

First, companies lay off full-time employees but most of the work still needs to be done. As a result, spending for consultants, contractors, and freelancers typcially increases during recessions. This means recessions can result in more business for your consulting company.

Second, recessions and market downturns pose big problems for your clients. Take this opportunity to get strategic about what types of consulting services you offer to your clients, and ensure that your solutions specifically address their recession-specific challenges.

This is your chance to be strategic for your clients. Look ahead to the challenges they will be facing in a recession and make recommendations that will help them take advantage of the recession for their own businesses, innovate, and/or lessen the impacts of the recession on their business.

For example, you can offer consulting that provides strategic planning, cost reduction, increasing profitability, and increasing productivity of their existing team.

 

Step 4: Double down on your consulting pipelines

To recession-proof your consulting business, it’s also important to double down on your pipeline.

Set a goal to increase the size of your pipeline by 25-50%. By having a larger pipeline, you’ll reduce the recession risks, including the possibility that deals will fall through or that contracts will take longer to close.

Have you been putting off business development for your consulting business? Now’s the time to get into a measurable lead generation routine.

In parallel, build out a pipeline of other consultants who you can collaborate with, partner with, or refer to in the event you generate more demand than you’re able to handle yourself.

 

Step 5: Strengthen your business owner mindset

Recessions are the time to be even more cognizant of where your mindset is at as a business owner/CEO. You have the ability to be in control and not feel that you’re at the mercy of external circumstances. 

Here are 7 key questions to ask yourself as you build a strong, recession-ready business owner mindset:

  1. How can a downturn/recession be an advantage for you?
  2. How can you be more nimble in what you offer & deliver?
  3. In what ways can you increase your impact?
  4. What do I need to be thinking about to feel more confident and in command?
  5. What do I need to stop thinking, that’s creating fear or panic?
  6. What is your opportunity to add/adjust to your offerings? (e.g. advisory)
  7. How can you stand out as a thought leader by getting in front of this topic?

 

How to get your consulting business ready for the market rebound

When you implement all five steps I provided for you above, not only will you have a strong, thriving consulting business during a recession but you’ll also strategically position your business so it’s ready to take advantage of a market rebound.

 

Get help recession-proofing your independent consulting business

There are three next steps, to put this article into action for your consulting business:

  1. Click here to listen to Episode 073 of the Grow Your Independent Consulting Business podcast: Recession-Ready Your Consulting Business
  2. Click here to take the Recession-Readiness Assessment for Independent Consultants
  3. Engage an expert in launching, building, and scaling consulting businesses to support you. Click here for more details on Coaching for Consultants.

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