3 Warning Signs Your Business Isn’t Ready for a Recession

A recession doesn’t announce itself. It creeps in — through slower sales, tighter credit, or rising costs. By the time it’s obvious, most businesses are already reacting from behind.

At Baker CFO Advisory, we work with businesses across industries, and the pattern is clear: the companies that survive downturns aren’t always the biggest or the fastest-growing. They’re the ones that saw the risks coming and made simple, strategic adjustments before things changed.
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This article outlines three warning signs that your business might not be as recession-ready as you think — and what you can do to fix them.

1. You Don’t Know Your True Cash Runway

It's not about how much cash you have — it's about how long it will last.
A healthy-looking bank balance can give a false sense of security if you don’t know what your fixed expenses are, how your revenue might shift, or how long you can fund operations without new income.

What to look for:

• Have you modeled your cash flow under a 20–30% drop in revenue?
• Do you know how many months you can operate without dipping into a line of credit?
• Have you factored in seasonal fluctuations or client churn?
  
  

What to do:
Build a rolling 13-week cash flow forecast. It doesn’t have to be complicated — it just has to be updated and real. Forecasting gives you time to adjust before cash becomes a problem.

2. You Haven’t Revisited Your Pricing or Margin Strategy

In a downturn, pricing pressure intensifies — and margins shrink fast if you’re not watching them closely.

Discounting might feel like the right move to keep revenue coming in, but it can quickly erode profitability if you’re not strategic.

What to look for:

• Are you defaulting to discounts to close sales?
• Has your cost of goods or services increased, but your pricing hasn’t?
• Do you know your true gross margin on your top-selling offers?
  
  
  

What to do:
Run a margin analysis on your top 3 products or services. If your margins are getting squeezed, look at how you’re bundling, positioning, or billing — not just lowering prices.

3. You’re Relying on One Customer, One Product, or One Market

Concentration risk is one of the biggest threats to business stability — and one of the easiest to ignore during strong sales periods.

If more than 25% of your revenue comes from a single client or product line, a single shift — like a budget cut or a contract pause — could destabilize the business.

What to look for:

• Is one customer responsible for most of your revenue?
• Is your offering dependent on a market that’s sensitive to economic conditions?
• Are you stretched thin across too few services?
  
  

What to do:
Start by reviewing customer and revenue concentration. If the numbers are top-heavy, begin exploring recession-resistant income streams — things that remain in demand or are essential even in lean markets.

Being recession-ready doesn’t mean expecting the worst. It means not being caught off guard by it.
These warning signs don’t always show up in dramatic ways — often, they reveal themselves quietly: inconsistent cash flow, outdated pricing, or a risky dependency on one revenue source.

Smart businesses pay attention early. They don’t just react — they prepare.

If any of these signs feel familiar, it may be time to revisit your financial systems and strategy. We help businesses build clarity before they’re forced to make urgent decisions.

Want to know where your business stands?
Visit bakercoadvisory.com or contact us to start the conversation.