Business

How to prepare your company for an economic recession

11 min read

This article has been translated from our English edition.

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How to prepare your company for an economic recession
How to prepare your company for an economic recession


COVID-19 has had a devastating impact on the entire economy. Before this pandemic, economists warned of a possible one recession Even so, many business owners were still unaware and still concerned about how to keep their doors open.

Unfortunately, we seem to be grappling with these economic problems for the next few months. According to a statement from the World Economic Forum (IMF), the outlook for global growth in 2020 is negative and it will be at least another year before a recovery is seen.

Here we’re going to examine some tips and suggestions to help your business stay recession-proof so it can weather the storm ahead.

Signs of recession

The full economic impact of COVID-19 is not yet in sight, but there are some warning signs that we are entering a serious recession. Here are some examples:

  • A dramatic rise in unemployment: Millions of workers are currently on leave and are expected to contribute to a dramatic rise in unemployment. A rapid rise in unemployment rates is a sure sign of an impending recession.
  • Consumers lose confidence: When consumers are comfortable, they spend more, but when confidence in the economy decreases, spending habits intensify. When consumer spending is slowing, this is a normal indicator of the onset of a recession.
  • Workers do not resign: As a business owner, you can develop a sixth sense of this when you have a disgruntled employee preparing to quit. When the economy is doing well, workers are more likely to leave and quit the company as they are confident that they will find another job. However, when confidence in the economy wanes, most workers will continue working fearing that they will not find anything new. For example, this trend is monitored with the in the USA Job vacancy and job rotation survey of the Ministry of Labor. This data is released quarterly and the September second quarter numbers are expected to show a lower churn rate than last year.
  • Decline in new car sales: After a home, a car is probably your most important purchase. While you might need a car to get around, you don’t need a new car. New car sales increase during tough economic times, but new car sales decline as the recession approaches.
  • Irregular interest rates: When interest rates behave erratically, this is a key indicator of an impending recession. Typically, you may find that a 10-year note pays higher interest than a 3-month bill. However, when a recession approaches, there is an inverted yield curve that occurs when long-term returns offer a lower interest rate.
  • Less opportunities for temporary workers: As the economy plunges into recession, contract workers find it harder to find work. The opportunities for agency workers tend to be greater when businesses struggle to meet demand and need additional help. As the economy deteriorates and contracts are in demand, companies no longer need temporary workers.

What steps can you take to help your business through this storm?

1. Make a quarterly cash flow forecast

One of the best ways to ensure your business can weather the ebb and flow of the economy is with a workable plan. You need to know exactly where your money is coming from and how it is being spent.

While looking past this week can be difficult in tough times, a quarterly cash flow forecast is crucial for the future.

This plan allows you to settle all the money and make adjustments if necessary. You can use this information to act strategically instead of reacting when something happens. You can also review your plan every week to stay on track.

A quarterly cash flow forecast is critical to visualizing the future / Image: Depositphotos.com

2. Plan different scenarios

The future is never certain, but you can use scenario planning to prepare for uncertainties. Try to consider different visions for the future of your company. This will help you rethink the options and understand the results that will keep you on the path to success.

Try to look at your initial plan, a likely scenario, and a worst-case scenario. As you work through each of these scenarios, you can consider solutions that you may not have thought of in order to respond to a stressful situation.

3. Examine your liquidity options

Liquidity is a critical aspect of any business. Although many companies continue to work from home, they need cash to pay their employees, bills, and expenses to keep their doors open.

There are many ways to create liquidity from alternative financial solutions by using commercial assets to offer a partial stake to private equity investors. In addition, there are currently government programs developed in response to the pandemic that can help you as well.

4. Maintain communication with your bank

In the past year, more than 22,000 companies filed for bankruptcy. That number is likely to increase dramatically in 2020. However, in many of these cases, companies have been unable to maintain communication with their lenders.

The most important step in helping your business stay recession-proof is to proactively communicate with your bank. Having a conversation with your bank shows the reliability of your company.

You can analyze your business risk score, the downgraded credit, and other areas that could affect your business. This will help you understand how your company will be treated in the future.

5. Stay in touch with your suppliers

In current conditions, it is difficult to determine when things will be “normal” again, so you should keep in touch with your suppliers. This is the best way to make sure your cash flow is not affected.

For example, at the beginning of the pandemic, U.S. and European fashion brands canceled orders valued at $ 1.5 billion. This has a ripple effect as these companies may struggle to pay their own suppliers.

Check out where the risks to your cash flow may lie. You need to review your contracts, talk to your customers, and make decisions from that point on. With a full understanding of the bigger picture, you can create a plan to ensure positive cash flow.

Check where the risks to your cash flow may lie / Image: Depositphotos.com

6. Take care of your customer relationships

Your customers are your main source of income. Losing customers is never good, but it can be especially dangerous during a recession. That’s why you need to make your customers your priority.

Focus on exceptional customer service that provides a better opportunity to retain your customers and attract new businesses. Customize your products and services, provide incentives and evaluate your after-sales processes to ensure that your customers remain loyal.

7. Focus on what you do best

As you prepare for a recession, don’t stray from your strengths. While diversification can be a good thing, adding new products and services to test is not an adequate safeguard against an economic recession.

Experimentation can lead to vulnerability and divert attention from what you are really best at. Instead, try to focus on what your company is doing well and work on making it even better. This will create a stable basis for any economic change.

8. Get an edge over your competition

Not all companies can weather a recession. So you need to make sure that your company is what it can do. It is important to gain an edge over the competition. You can start researching your industry. See where the competition is ahead of you and where you can improve your business. While this can take a long time, this research could save your business in the long run.

You can use this information to implement well-founded strategies, offer products or services that the competition doesn’t, and to exceed customer expectations. This helps your company stand out from the competition in your target market.

9. Don’t neglect your marketing

While it can be tempting to simplify your expenses during a recession, your marketing efforts shouldn’t be neglected. Your marketing is even more important during an economic downturn.

While other companies may be scaling back their marketing, this is an opportunity you can use to differentiate yourself and increase your brand awareness. From improving your copywriting to researching new marketing strategies, you can increase audience engagement and increase sales.

Brainstorm ideas to maximize your marketing investment and leverage your competitive advantage. This helps maintain customer loyalty and keep your accounting in the dark.

10. Consider new ways to benefit from delivery services

The pandemic has forced many companies to rethink their services. New ways of taking advantage of this are worth considering. From digital assets such as teaching or coaching to virtual offerings, think of the services your company can offer.

Creative and unique ways to support your customers will help keep your company in mind.

The pandemic has forced many companies to rethink their services / Image: Depositphotos.com

While we haven’t figured out all of the financial implications of the pandemic, it’s important that you make your business recession-proof. While nothing guarantees businesses will weather a difficult recession, strategic planning offers an opportunity to combat the potential storm.

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