Recession Readiness
The impact of a global recession
With increased globalization comes increased interdependence between economies of different countries. As such, the impact that an economic downturn within a nation’s economy can have on other nations’ economies, and indeed the world market, has grown.
Recession is the term used to describe when the GDP growth rate of a country is negative for two consecutive quarters or more. According to the National Bureau of Economic Research, a recession is marked by a "significant decline in economic activity spread across the economy, lasting more than a few months."
A recession is characterized by:
- Job losses or high unemployment, as organizations lay-off staff to cut costs.
- A decline in “real income” or falling average incomes.
- Business closures & a reduction in industrial production and manufacturing.
- A slump in consumer spending, generally as a result of high unemployment.
How does a recession affect businesses?
Early on in a recession, businesses can expect credit conditions to tighten and new terms may need to be agreed upon. Your accounts receivable will begin to move sluggishly as liquidity becomes an issue for all parties up and down the supply chain.
Customers who owe you money may delay their payments or even default on them. Protecting a reliable source of working capital becomes critical. If staff layoffs occur, morale suffers and the risk of overwork and burnout increases.
An economic recession can be particularly hard on small businesses, as they generally have minimal cash reserves or assets, and are less likely to be able to secure additional financing.
If liquidity issues persist and the business cannot meet the terms of its creditors, bankruptcy proceedings may follow. A chapter 7 bankruptcy of the US Bankruptcy Code puts the company out of business and liquidates its assets. An alternative option, which allows the company to continue operating, is a corporate restructure (or reorganization), also known as a chapter 11 business bankruptcy.*
Learn more: Why Do Businesses Fail?
What are steps that businesses typically take during a recession?
Typically, businesses focus on cost-cutting and protecting cash flow during a recession.
The specific steps a business takes during a recession will depend on the size of the organization and what resources it can access or liquidate to weather the storm.
Common steps include staff cuts, renegotiating payment terms, financial restructure, and seeking government assistance.
Learn more: Strategies for Business Survival During a Recession
*Note: Companies in the UK do not face “bankruptcy”. Different terminology is used relating to insolvency.
How to prepare your business for a recession
Whatever the size of your business, preparation is key—as is having complete oversight of company financials and other material information, for total confidence and speed in decision-making.
Read our recession planning guide for:
- Tips on preparing your startup
- How to raise capital quickly
- How to prepare your SME or larger corporation
- A new way to approach restructure
Read now: Recession Planning for Businesses
How Ansarada can help
Every day we help thousands of businesses get ready for and experience success in capital raising, M&A, re-financing, restructuring, post-acquisition integration, tenders and more.
With over fifteen years of experience on 24,000+ critical deals and over $1 trillion in deal value transacted on our platform, your business couldn’t be in safer hands in the lead up to or during a recession.
Streamlined capital raising
Quickly raise debt or equity capital when you need it most. Give yourself the best chance of raising the funds you need in a highly competitive market. With more investment options than ever, potential investors demand more thorough due diligence and responsiveness from businesses.
Ansarada can facilitate both with the world’s most advanced Virtual Data Rooms, bank grade security, Q&A features and streamlined due diligence Workflow. All features are completely free to use until your first potential investor logs in.
Data-fuelled strategic oversight
Make sure your business is future-ready and braced for recession impact. Use Ansarada’s Workflow tool to get total oversight of threats, risks, and gaps. Analyze your most promising business opportunities efficiently and in depth. Collaborate using clear and up-to-date information, with no dispute or confusion as to data sources. All features are completely free to use until you execute a deal.
Rapid financial restructuring
Ansarada is the platform built for insolvency professionals. Turnaround your business by restructuring debt, liquidating assets, and improving profitability. Ansarada facilitates insolvency, restructuring and more, with the world’s most advanced Virtual Data Rooms, bank grade security, Q&A features and streamlined Workflows. Our platform has helped turn around world-famous businesses, like Virgin Australia and Europoles.