Watch your back for a recession
I’m not an economist (far from it!), but it’s hard to miss the rumblings in the financial press that the US (or even the world) economy may be headed for a recession. After a 10-year bull market, we’re in a bit of a “what goes up must come down” situation, and as a business owner, the best time to start planning for a downturn is last year, but if you haven’t done that, let’s start planning now!
This topic has been marinating in my mind for a while, and it came to the forefront when I listened to a recent episode of The Freelancers Show podcast, on recession-proofing your business. Side note: I both understand and dislike the term “-proofing” (future-proofing, recession-proofing), because you can’t really “-proof” against something as uncertain as the future, or a recession. And I think it can create a false sense of security to say “my business is now recession-proof,” when in reality that’s not possible. However, I understand why people use that term, so let’s go with it.
A helpful episode of The Freelancers Show
The Freelancers Show–hosted by a rotating panel of IT guys–is one of my favorite non-translation business podcasts. The hosts and topics are generally really interesting, I think it’s good to get perspectives from another industry, and I find a lot of their advice appealing because it’s for nerds. It’s straightforward, non-salesy stuff for people who work in nerdy industries. The host of this recession-proofing episode, Reuven Lerner (he’s a Python programming trainer), is one of my favorite panelists, and his strategies are often surprisingly applicable to translators, because he works with a lot of international clients.
Step one: build up your savings
So, if a recession is in fact coming, what can you, as a freelancer and a business owner, do to prepare? I recommend that you listen to Reuven’s podcast episode, and I’ll elaborate on a few of its suggestions here, with a few of my own.
–If business is good for you right now, start building a cash cushion. If the recession comes, you have a financial buffer. If it doesn’t, you still have a financial buffer and you can re-invest it in your business, or decide that life is short and it’s time to go to Hawaii for a month. Either way, a better cash cushion in your business is a healthy thing to have.
–How much is “enough” in savings? That’s a tough one because it depends on the specifics of your situation. By how much could you cut your living expenses in a pinch? How much debt do you have? Who else relies on your income? Ideally, I think a year of living expenses in the bank is a good cushion. In reality, you have to balance the many moving parts of your financial situation.
With the caveat that I’m not a financial advisor, here’s an example. I aim for about a $10,000 cushion in my business savings account; much less than a year of living expenses. However, I feel that for my situation, it’s sufficient. We paid off our mortgage a number of years ago and are now completely debt-free, and our house has approximately doubled in value since we bought it in 2004–that opens up the option of taking a pretty large home equity loan if we needed cash. We have a decent amount of long-term savings in retirement accounts, but because of our big push to go debt-free (which my husband and I both agree was worth doing), we probably have less liquid cash than many two-income families do. However, we have a lot of financial flexibility if we need it: we have one kid who will go to college next year (all the money for that is in a 529 account) and thus will no longer live with us full-time. If we did some improvements to our house, we could rent it for probably $2,500 a month. I already have a job where I can work from anywhere. My husband has an in-house job, but he works in IT so theoretically could find a remote job. And let’s say that we a) needed to cut our living expenses and b) wanted to go on an adventure, we could do something out-of-the-box like move to Thailand for a year, where one can rent a quite nice one-bedroom apartment for, let’s say, $1,000 a month, while simultaneously renting our own house out for a lot more than that. Realistically, we both love traveling, and we could probably find a place in a really inexpensive country where we could even live without working if we rented our house out. That opens up a lot of options.
On the flip side, if you have a big mortgage, car loans, credit card debt, student debt, a spouse who stays home full time, your elderly mom in the garage apartment, and three kids in elementary school, you’ve got a very different situation. That’s a pretty big ship to re-route if the economy goes sour. In that case, you might aim for more like 75-100K in savings. Everyone’s mileage varies, but hopefully those examples help.
Step two: consider your current clients
In the podcast episode, Reuven makes the point that recessions don’t hit every business sector equally, or perhaps even at all. For example, the dot-com bubble really only affected tech companies. At the time of the 2008 recession, I was doing a lot of legal translation. Business volume during that time: never better! Some sectors of the translation industry make money “coming and going” so to speak, and are probably relatively immune to a recession.
But you want to look at your current client base and identify clients where you might be classified as “the fat” if that client had to “trim the fat.” Reuven uses the example of teaching in-person training courses: he anticipates that if there’s a recession, his smaller clients may stop hiring in-person trainers all together (so he’s developed more robust online offerings), or they may bring trainers in for shorter courses. In our profession, I’d be looking at clients who are hiring a translator because they want to, not because they have to. If you’re translating a client’s blog because they think it’s fun to have it in multiple languages, that might be an expense they’d look to cut if they needed to. If you translate for architecture or construction companies, they could be some of the first to be hit by an economic downturn.
So first, take a realistic look at, let’s say, the clients that provide the top 50% of your income, and ask yourself whether they’re likely to cut back on translation in a financial pinch.
Step three: consider what thrives in a recession
Even in a serious recession, there’s still business to be found. Reuven gives a great example of this: in a tight job market, many people are looking to build up their professional skills so that they’re as marketable as possible for the smaller number of jobs that are available. Recessions are a great time to expand into teaching and training, or to offer services like copywriting and web design that help freelancers market themselves.
Recessions are also a great time to beef up your own career skills. When you don’t have a ton of work, you have another advantage: time. If you have that robust savings cushion and can afford to take a hit on your paying work, a recession can be a great time to go back to school, pursue a new specialization, re-train for an aspect of the language professions you’ve always been interested in, whether that’s software localization or conference interpreting.
Step four: Start casting a wider net
When you have a thriving business, it’s easy to get complacent. But when a recession hits, you’re stuck kicking your (nonexistent) marketing engine into gear. Better to start revving it up now, so that the groundwork is in place when/if you need new clients. Examples of this would include:
- Starting to attend client-side conferences to get to know the players in your target business sectors. Perhaps you can even start replacing some of your lower-paying clients right now. Read a blog post about how one of my online course participants did exactly that.
- Expanding the circle of translators and interpreters who know you, which is not only fun, but increases the possibility that they will think of you when they’re giving referrals or looking for someone to partner with. I’m doing that in my own business: for a long time I’ve turned down basically every non-ATA speaking invitation I received, and I’m now starting to accept some of those since I have more time. This appeals to me personally, and is also a good way to spread the word about my online courses and books to new people.
- If there’s a job search portal for your target business sectors, join it. For example I belong to Devex, which focuses on the international development sector. I’m not looking for an in-house job, but I like to keep an eye on which entities are hiring, which indicates that they’re on solid financial footing.
- The run-up to a potential recession is also a good time to think about diversifying. If you’re interested in running a multi-pronged business–which not everyone is–now may be a good time to launch another arm of your business.
Finally: take a look at your fixed expenses
A sudden business downturn can hit very hard. For example, I expect to make almost exactly $100,000 from translation this year (which makes it easy to calculate percentages…) and I earned $18,000 from one client and $17,000 from another, both of which are entities that could theoretically take their translations in-house if they assigned them to a bilingual staff person, which I know for sure that they have. Of course that’s not a great option–they’re happy with my work and their bilingual staff have other jobs and aren’t professional translators, but it’s still possible. And that’s 35% of my income for this year.
To keep that kind of hit from becoming a catastrophe, it’s good to a) build a savings cushion (see above) and b) carefully review any fixed expenses you have in your business. Reuven gives the example of having salaried employees who he had to lay off during the 2008 recession. If you have employees, especially if you live in a country where you’re legally obligated to pay them severance if you lay them off (one month per year of service is not uncommon in some places), that’s something to consider. If you rent an office (which I do), that’s also something to consider. For example, I would probably not take out a year-long lease on a desk space right now; I’d go for month-to-month if at all possible, and if not then something like six months. If needed, I could–perhaps at the cost of my mental health!–give up my desk space and go back to working from home.
Readers, other thoughts on this? How concerned are you about the possibility of a recession? What are you doing to prepare?
If you enjoyed this post, you might be interested in the January-February 2020 session of my online course Marketing to Direct Clients; including recorded slide presentations, live question and answer sessions, and individual feedback on your plan to target direct clients.