Economists across the globe have been predicting that a recession will likely occur in the next couple of years. Whether it’s due to the over-valuation of tech stocks or the effects of the pandemic, it’s clear that the business world will feel the impact of a recession in the year. Despite the negative effects of a recession, many companies still find ways to overcome these obstacles and continue to grow. This is because they can adapt to the changes brought about by the situation.
This article discusses why it’s important to develop a recession preparation plan and suggests how your business can do it.
A prolonged economic decline is referred to as a recession. It usually lasts for at least six months and can be longer. A recession is generally recognized after the country’s GDP has contracted for two straight quarters.
Though there are various factors to determine if a recession has started, a few common factors trigger a recession. For example, the company’s income, employment, production, and sales drastically decline. Fortunately, there are ways that you can prepare for them before they happen. Usually, during a recession, businesses reduce their workforce and cut back on spending.
Here are ten tips to prepare your business for a recession. We discuss how you can save income and improve workflow during a downturn.
1. Check the expenditure
Before a recession begins, it’s vital to start tracking the company’s cash flow. Doing so will allow managers to see how much money is available to spend and determine if there is a need to increase or decrease the expenditure. It can also help managers prepare a budget that includes a list of expenses the company can cut. Managers can plan on hiring more staff or upgrading the computers to stay efficient. Thus, keeping a check on expenditure is the most effective way to save the company’s revenue during a recession.
2. Watch the credit limits
Businesses need to offer credit terms to remain competitive. Although managers may not be able to change the terms for the customers who are already paying the company, it is important to be selective when making offers to new customers. Doing so will require due diligence, but it’s more important to spend time looking into the details of the customer’s account rather than trying to collect past-due bills. When the credit limits are airtight, that can be a lifesaver for the company.
3. Backup with credit
Banks tend to reduce or even cancel their lines of credit during times of hardship. So, one of the best ways to boost cash reserves is by taking out a line of credit. Although it’s not necessary to use it, it can give the company peace of mind knowing the available amount of money. Managers can plan on taking a credit plan with the help of the finance team and make sure the company is safe with enough reserves during a recession.
4. Re-work the terms with suppliers and vendors
Managers should keep an eye on the suppliers and vendors feeling the effects of the slower economy. They can negotiate and make better terms for the company with the suppliers and vendors and ensure the economy is safe. Experts recommend that businesses timely review and update the existing contracts with suppliers or vendors to ensure they still meet the needs of both parties and to address any issues that have arisen.
5. Play wise with the funds
Managers can plan on checking the income regularly once a recession is predicted. Although credit accounts follow a certain leeway in the past, it’s important to start collecting the debts as a recession looms. Managers can make sure the funds are returned. There will be chances that customers may begin to reduce their spending, so managers must start taking advantage of the available collection opportunities.
6. Keep the workforce and operations intact
Implementing a plan to streamline the operations to keep the staff and customers during the recession is a brilliant move during a recession. If the company has plans on hiring, then it’s important that managers consider outsourcing some of the operations, such as payroll and HR. Managers should have effective strategies to keep the workforce and operations intact before the recession hits.
7. Continue marketing
One of the ways to save money is to reduce the marketing budget. However, before the managers start thinking about this, consider how the advertising will affect new customers. In addition to showing off the company’s capabilities, continuing the advertising will also help build a stronger relationship with the current customers and give new ones confidence to do business with the company. Organizations may need to focus on retaining existing customers and acquiring new customers to maintain revenue during a recession.
8. Find trusted partners
Managers can find companies that want to work with the organization and those that want to take advantage of the services and money by taking the steps above during a recession. Managers should find ways to provide protection from unpaid bills, help expand operations into new markets, and provide credit evaluation assistance. In short, watch out for trustworthy partners, which, again, managers can easily tackle.
9. Encourage the employees
Regardless of the current economic situation, managers must continue strengthening the team. This can be done by reminding the employees of the company’s values, mission, and vision. Also, ask them to commit to the company’s path forward and help overcome any challenges. A strong sense of purpose allows employees to stay focused on their goals and overcome obstacles.
10. Company and client relationship
The success of any business depends on its relationships. Having a good relationship with its clients is very important, as it can help them stay loyal and avoid turning to other competitors. To build stronger relationships, try to evaluate and improve the existing ones regularly. This should include the company’s stakeholders, such as customers, suppliers, and employees. Managers can also consider divesting underperforming products or services. Another important step is regularly reviewing the creditworthiness and assessing the customers’ financial situation.
Organizations may need to make significant changes to survive and continue operating successfully during a downturn. Companies that adapt to difficult times and are willing to take on new challenges often develop a culture that encourages innovation and collaboration. Your managers can also do this by bringing the team along on the journey. Following the useful tips outlined in this article, we hope you can better prepare your company for any financial emergency.