Economic uncertainty ahead: 7 things you can do to prepare for a recession
Startups are rapidly laying off people, and as the 2022 recession seems inevitable, more businesses will follow suit.
How do you prepare for a recession
Ideally, cutting costs by laying off staff should be a last resort, but it is a common solution businesses use when they aren’t adequately prepared for a recession.
Experts predict that in 2022, the recession will be different than those we’ve seen before. There are various factors apart from economic uncertainty at play that require businesses to be prepared.
While dealing with the ongoing inflation, companies must navigate supply chain disruptions, geopolitical issues in certain markets, labour shortages and the foggy business environment caused by the pandemic.
So, what can you do to prepare for a recession? This blog will outline solutions to implement when planning for a downturn.
Recession planning involves cutting costs, optimizing cash flow, inventory management and foolproofing operations. You might have already considered these steps in your recession strategy, but how you achieve each of them is far more important.
What are the signs of a recession?
It’s essential to start preparing for a recession before you see the warning signs.
The key indicators of a recession are; inflation, declining GDP, lower sales, rising unemployment rates, increasing credit card and loan debt, and slow production.
Having a recession strategy for 2022 is a must for companies who don’t want just to survive but thrive. Therefore companies must act quickly and efficiently.
What not to do when preparing for a recession?
Bain & Company identifies three traps when dealing with a recession.
- Extreme cost-cutting: Companies that aggressively cut budgets from R&D investments, sales, and marketing budgets, or worse, valuable talent, may end up making the situation worse for themselves.
- Going full out: Some companies do the opposite and put all their efforts into growth.
- Unresponsiveness: Finally, companies who wait too long to react to the recession fall behind in preventing the financial ramifications.
Without further ado, here’s what to do to prepare for a recession.
1. Take your cash management to the next level
First and foremost, businesses must establish cash management best practices or revise their existing methods before the downturn.
Consider how your business monitors the cashflow, your existing investments, and how you do financial forecasting. Ask yourself:, “What can be done better?” This can help you boost your company’s economic resilience.
Before the recession, you must secure incoming cash and review your cash reserves and outgoing payments.
As well as securing incoming cash, you need to restructure pricing. Inflation has already prompted many businesses to increase their fees or prices. Companies need a communication strategy to remind clients of upcoming payments and inform them about price increases.
However, don’t forget that your clients are equally affected. So, providing value that makes your business indispensable is key to retaining your clients and, consequently, the incoming cash.
2. Manage your expenses and debts
Managing cash also includes finding ways to better manage expenses and debts.
Where you can, reduce business expenses such as the lease of your office space. Review the products and services you invest in to decide if you absolutely need them.
Using effective spend management software can help you keep track of upcoming payments and revise your procurement process. You should be aware of any discrepancies or inefficiency in your company’s spending to prevent unnecessary losses.
If your business has debts, try to repay the ones with the highest interest rates. You can also refinance some of your debts when interest rates fall.
For ongoing business investments such as machinery, make sure to complete them before investing in something new. During a downturn, a good strategy is to make sure your investments can give you an edge against your competitors.
Consider applying for trade credit insurance to add an extra layer of capital protection.
3. Sell smarter
A big mistake made during a downturn is cutting marketing and sales budgets. Instead, businesses need a cost-effective marketing strategy that continues to bring in new leads.
Your sales team is just as important as ever, as you can grow your offerings and sell to your existing customers. Cross-selling or upselling can be more successful during a downturn, and at this time, your customers will be more likely to care for safety and security than usual. Offering them solutions for the most significant challenges they may be facing will make you a trustworthy vendor.
Selling smarter and focusing on quality instead of quantity can help businesses secure more prominent sales during a recession.
4. Manage your inventory efficiently
Businesses must make accurate predictions about customer demands, so they don’t overstock their inventory.
Businesses that sell goods should secure their inventory by speaking to their suppliers. Create a plan and discuss how you can avoid inventory stagnation or overstock.
Companies can successfully get through the recession by streamlining their offerings and eliminating complexities in their product portfolio. This also ensures meeting customer demand without suffering supply shortages.
Focusing on value instead of variety can help you stay on top of sales during a recession.
5. Be creditworthy
When you anticipate tough times ahead, being eligible to get financial support to push through is essential.
Being creditworthy and having a good relationship with your lenders and investors is animportant step in overcoming potential economic turbulence.
Whether it’s your bank or investors that you expect to lend you a hand, you must make sure they believe in your CFO and their recession strategy.
6. Improve your resilience
Today’s CFOs have the heavy task of building resilience throughout the company’s financial and operational systems.
Existing supply chain issues can regress business operations, but it all comes down to company leadership to keep the boat afloat.
When looking at the financial crisis of 2007-2008, McKinsey points out that “foresight, response and adaptation” helped companies outperform.
McKinsey’s research shows early cost-cutting moves and lowered debt/capital ratio helped achieve resilience.
7. Scale automation
Scaling procurement automation systems across your sales, marketing, and end-to-end procurement activities saves your business money by reducing costs. As a result, you can instead make wise investments that will get you through the recession.
Companies that use software to speed up processes such as end-to-end spend management, purchasing, vendor management, accounting and more will be able to optimize productivity by eliminating unnecessary activities.
How Procurify Helps
Procurify is a simple, scalable, and straightforward spend management software.
It’s a one-stop platform that provides your team valuable insights and transparency across your company’s workflows.
You can view real-time data, make informed procurement decisions, organize, allocate, track, and report on spending with Procurify.