The ideal time to examine your recession strategy is during the current downturn. Right now, you have an excellent opportunity to flag issues and decide where you need to improve in the future.
Now is an ideal time because you have recent evidence of how a recession might impact your business. How well did your company weather the COVID-19 crisis? What could you change to better prepare for the next recession?
The answers to these questions will be the foundation of your recession strategy.
Use the current crisis to inform your recession strategy
No business exists without vulnerabilities. During the pandemic, you likely experienced some obvious pain points. You might have experienced a dip in sales, struggled with business continuity when going remote, or watched as one of your services quickly became irrelevant. List the ways you became vulnerable in the recent recession and use them to build a long-term recession strategy to ensure agility in the future.
Adaptability was likely the tone of your business in 2020. I am sure that you had to make decisions as problems arose. Perhaps you had a plan for losing a source of revenue, but not for widespread remote work. Point is: no recession strategy is bulletproof. In a downturn, you might need to let go of tradition and stubbornness – these will prevent you from adapting and could be your downfall in a recession.
This is also where scenario planning comes into play. Sit back and think about different circumstances that might impact the future of your company. Review your original plan, discern the probable scenarios and the worst-case scenarios. Note what your reaction will be to the worst-case scenarios so that you can have an idea of how you might react in a stressful situation.
Ensure your recession strategy takes advantage of growth opportunities
Recessions can generate opportunities if you are looking for them. I recommend keeping an eye on a few areas, including:
- Client relationships: During a recession, it is not easy to discern how soon normality will return. Your clients may be examining where they can cut expenses and might consider your product as an unnecessary expense under the circumstances. This is where it can become beneficial to adapt your products and services to retain and attract business.
- Talent: While mass unemployment in a downturn is not necessarily positive, it does create a larger talent pool for you to dip into and accelerate your growth. Take the recession as an opportunity to engage diverse and highly-skilled talent looking to join a growing company. Furthermore, this is an excellent opportunity for upskilling current employees to fill gaps in your business.
- Prioritise your strengths: Diversification can be one of the riskier measures to take when growing your business – even when the economy looks good. Instead, it can be much more productive to strengthen your current offerings and make them even better. This will create a more stable foundation during an economic shift.
Fine-tune cash management
Sit down and review your expenses, prices and your budget. Thinking about where you can tighten your spending now will ensure you have the reserves you need when times get tough.
Cash excellence is a set of best practices for careful cash and liquidity management. You can leverage the principles of short-term cash preservation and excellence for your long-term recession strategy. If you can save more now, you will have more reserves when a downturn hits.
Furthermore, you can focus on building a cash culture across your organisation, including people, structure and process.
- People: Cash excellence starts with you and the rest of the leadership team. By managing cash well, you will demonstrate to employees the importance of cash for building resilience and creating value.
- Structure: Make cash a regular discussion point in meetings with the leadership team. It is best to focus on regular discussions rather than only focusing on the figures at the end of the quarter or financial year.
- Process: Create a set of Key Performance Indicators (KPIs) around cash. Assign the appropriate KPIs to the right levels of the organisation and have the CFO oversee all of these. I also recommend implementing policies and guidelines for frontline workers when making daily decisions.
Know when you will need to implement your recession strategy
Part of preparing for a recession is being able to read the landscape and recognise the warning signs. A few indicators that a recession could be on its way include:
- Buyers spending less: Buyers will be more hesitant to spend their money when they have low confidence in the economy. If you notice consumer spending slowing down, this is a good sign that a recession could be around the corner.
- Increased unemployment: A spike in the unemployment rate is a good sign that a recession might be on its way. Businesses might be letting people go to tighten budgets and reduce spend.
- Unhappy employees not leaving: You might have people within your business that show all of the signs of leaving. Yet, they stay. When the economy is looking good, people are more likely to walk out as their confidence in finding a new position is high. When confidence in the economy lessens, they will be less likely to leave as staying is the safer option.
Taking notice of these signs means that you will know when to begin implementing your recession strategy.
Now is an ideal time to begin strategising for the next recession. Consider your weak points, consider how you will turn challenges into growth opportunities and how you will achieve cash excellence. Begin preparing now so that when you notice the signs, you can help your business pull through.