Surviving a recession

Since I wrote about the need to prepare for a recession back in June, it’s fair to say the general mood about the economy has darkened.

As a result, I’d like to add three further tactical suggestions to my Recession Warning post of 2 months ago.

What are my qualifications for giving advice on recessions?

·         Observed my parents successfully managing their business through the 70’s oil shocks.

·         Turned a strategic business unit from loss to profit in the 91-92 recession.

·         Steering my tech consultancy business through the dot com crash and the global financial crisis. 

1. Successful businesses serve their customer by enabling their customers to achieve their goals and a lot of the time achieving the goal requires solving a problem. The optimist will say that the good news about a recession is that businesses have more problems that they need to solve more urgently. The bad news is the problems that get prioritized for solving may not be the one you currently solve.

This creates a new reality in the same way the recent Covid pandemic did. Was providing infrastructure for employees to work from home the top priority for business in November 2019? Of course not, but by April 2020 it was the number one priority for a lot of businesses. What will be the priorities in your customer base as they adjust to a slower economy and how will you support them in this?

Those businesses that align quickest to the new reality will be the ones that prosper.

2. Cash is king. Yes, I said that in my last post. I’ll probably say it in every post on this topic because it guarantees survival. Strengthen your balance sheet as fast as you can. As far as cash flow is concerned plan for a longer than expected downturn. I give that advice not because I have any wisdom as to how long the downturn will last, but because doing so has two key benefits: you are much less likely to have cash flow problems if the down turn is longer, and, if it is shorter you will have spare cash for investment when the inevitable upturn happens.  

3. Make brave decisions. Turning round the business unit in 1992 involved a dramatic reduction in the number of products sold. This simplified the business – enabling greater focus on profitable activities - and reduced the amount of working capital required. Getting through the dot com crash required shuttering a line of business that was burning cash. I should have taken these actions anyway, but the downturn concentrated my thinking. Not all brave decisions are about cost cutting. During the global financial crisis I introduced a new service line that laid the foundation for growth after the crisis.

What’s the best way to make brave decisions?

·         Get early advice from someone who has expertise in your field of business but is not emotionally involved in your situation.

·         Agree some KPI’s that enable you to monitor progress in the interim between advice and action, in case you either need to act earlier than estimated (or in rare cases the situation changes dramatically for the better).

·         Communicate the situation to all stakeholders as early as possible and as regularly as makes sense from the stakeholders point of view.

·         Review the situation with your advisor just prior to taking action to check you are not missing something.

·         Take action.