Even in the best of times, running a company is challenging. However, during a recession or other economic downturn can seem impossible. In most cases where recession is the distressing factor, there is a warning that it is coming. Therefore, with the proper preparation, your company can survive a recession.
A recession comes from consumers spending less due to overall economic-financial stresses. This fall in spending then slows the flow of money in small and large businesses. Most larger companies will whether a recession, but many small businesses will fold under economic pressure.
The fall in this spending is worrisome since it represents a considerable percentage of the country’s economy and almost always grows, albeit slowly. Even in the last recession of 2001, consumer spending in the US never fell, only slowed its growth.
Because of Covid-19 and a sharp rise in gas prices and taxes expected this year, a recession is looming over the horizon. Many economists predict it to be worse than the last recession felt by the US and warn companies to prepare themselves to weather it the best they can.
Consumers are not only concerned about paying their debts; companies are also suffering. The process of “deleveraging” is typical of a recession, but reversing the credit operations made through external financing (“leveraged purchases”) can be a violent measure.
Because many companies have debt and other ongoing expenses, it is suggested that business owners find a way to overcome the deficit and pad their revenue. Further steps need to be taken to safeguard against a recession.
In a recession, you must find a way to continue to operate your company. How? The wisdom and experience of other executives and consultants can guide you in taking the steps.
As in any critical situation, much depends on the speed of your actions. It is in our nature to avoid facing bad news and imagine that problems will be solved quickly and easily. But all experts advise doing just the opposite: assume that circumstances will worsen more than you expect.
“Assuming the worst scenario, you will identify the areas where you think you will be most efficient, then you’ll just have to get down to work,” suggests Intuit CEO Brad Smith. Anticipating future reality before your competitors can make a difference when it comes to survival.
The most effective decisions and actions that you can make to prosper during a recession are worth saying, the ones you established from the beginning. In times like this, the strong gets more robust, and the weak end up as devoured. For example, in the third quarter of 2008, when Washington Mutual and IndyMac banks went bankrupt, Bank of America (which disposed of subprime mortgages in 2001) attracted 21 million new deposits as consumers sought security.
Something similar happened with the furniture chain, Wickes. When it declared bankruptcy, more than 100 trucks transported furniture to its stores, then the retailer -who had taken care of its financial health- acquired all the furniture chartered at a bargain price.
Remember those lessons for the next. For now, what is done is done. Regardless of the type of business you run, the following ten recommendations will benefit you:
- Adjust your priorities to the new reality: if before your focus was to expand to new markets, expand the workforce or increase profits, you must change direction, assume another mentality that helps you to face the crisis, like being more frugal, avoiding unnecessary expenses and weigh any investment.
- Keep investing in the essentials: never stop financing the pillars of your company (be it customer service, innovation, employee training, etc.)
- Always communicate, balancing realism and optimism: many executives often enter a period of silence when they go through uncertain times and have no answers. Good managers communicate more than ever in those moments, employees want to know your point of view, and you have to be honest and direct, keep hope alive, give confidence and reaffirm the company’s leadership.
- Look for new solutions to your clients’ new problems: no matter what your business is, you can constantly redefine the value for the client and propose strategies that benefit both.
- Do not rush to cut prices: reducing prices is not always wise because you have to generate more sales; now is the time to study your market and measure price sensitivity.
- Focus on the capital, how you will get it and how you will use it: in times of fat cows, the most critical business rule is forgotten: to earn a return on capital that exceeds the cost of capital. As the credits are lax and at low rates, you leave aside the importance of the sources of capital and their efficient management.
- Reassess your staff: it is an essential task because you choose well if you get to lay off workers. Do not make the mistake of punishing your best employees by reducing their salaries or bonuses due to the recession. Take care of them.
- Re-examine the compensations and incentives: what are incentives? Learn from the Wall Street case, whose programs incentivized risk; hence everyone would want to win regardless of the consequences. You can implement a system that encourages your workers in the long term to see the recession as part of a more promising cycle.
- Think twice about offshoring: it is not profitable to manufacture in China and Malaysia in some industries. The wage gap is no longer significant, and transportation costs often make it less attractive to offshoring. Also, think about taxes, tariffs, and speed. Offshoring is not always the best option.
- Analyze acquisitions and mergers with intelligence: If you have adjusted your belt, you can not follow Warren Buffett’s advice to be ambitious when others are fearful, but if your finances are solid, then it is time to act. It is an excellent opportunity to acquire small businesses and make their talent.