Recession Warning
The tech sector is one that, by and large, benefited from the pandemic. There are, however a number of warning signs that business growth is slowing – hiring freezes and lay offs, advice notes from VCs telling companies not to plan on being able to raise funds in six months time, company strategies switching to profits rather than growth – all point to difficulties ahead. Add in high inflation, and the uncertainty caused by conflict and a full blown recession may be coming our way in the very near future.
Recessions are not pleasant experiences, so I hope this advice doesn’t prove necessary, but having experienced several of them here are 5 important lessons.
1. Do some scenario planning now
When a recession hits adverse changes to your business can happen very quickly. It is useful to have the outline of a game plan for some common scenarios. For instance, what happens if your revenue drops by 25%? What happens if your best customer stops trading? What happens if the bank halves your overdraft facility (or withdraws it completely)? If you have thought out what you will do if this happens you can implement your survival plan more quickly.
2. Cash is king
Businesses fail because they run out of cash. If you are planning to raise cash in the next 12 months accelerate your plans and do it now. Raise more than you think you will need, if you can.
Tighten your payment terms and if you are not currently enforcing them, start doing so now.
If you deliver project services or managed services change your fee structure so that you have an upfront element on commencement. Offer a discount for payment upfront.
If you don’t run regular cash flow forecasts, or your process for doing so is time consuming find a way of running quick and regular ones.
3. Know your customer base
Companies can fail quickly and funnily enough they don’t warn you before it happens, so make sure you are not dependent on one or two customers for more than 15% of your business.
Watch for signs that they are in trouble – late payment is a warning.
4. Don’t waste a good crisis
Any crisis provides opportunities as well as threats. For those businesses that are strong there are opportunities to acquire customers from struggling competitors (or even the competitor in its entirety).
There is also the opportunity to reshape your business as your team will be sympathetic to the need to adapt to survive. This could be an internal re-organization or a change of sales focus that would be difficult in normal times, but, can happen fast in a crisis.
5. Beware the upturn at the end
The effects of a recession tend to last around 2 years at which point the economy can grow relatively quickly. Make sure you have a plan for that growth, that is based on the reality of your business post-recession rather how it was before. Don’t overextend yourself. Be cautious, more businesses fail in the upturn at the end of recessions than during the recession.