Business Planning for a Recession Guide
It’s time to do some business planning for a recession. Whether you’re a startup or SME, take note of these strategic tips and steps that you can take right now to (as best you can) recession-proof your business. There’s also plenty more information you can access in our Recession Readiness Hub.
First, let’s investigate the question that’s currently on everyone’s lips…
2022, 2023, or 2024 recession
When is the next recession likely to be?
CBS News reports that US economic activity shrank in the first quarter of 2022, inflation is at a 40-year high and the stock market is sliding. All the signs are pointing to an imminent recession but economists can’t agree on exactly when it will hit.
Wall Street says it won’t be 2022 but Main Street disagrees, and now Deutsche Bank has come out as the first major bank to forecast a US recession in 2023.
International turmoil, including the risk of recession in Europe and China, is contributing to the dim outlook for the US economy. The best advice we can give to businesses is to plan for a recession now to ensure you’re prepared.
How long is the next recession going to last?
Nobody can be sure about the length of a recession, especially when it is still yet to hit. However, Jason Furman, an economics professor at Harvard University who served as an advisor during the Obama administration, notes that, “Consumers are spending like crazy, businesses are going to need to rebuild their inventories, and a lot of workers are still flowing back into the labor market … all of this makes me worry about one or two or three years from now — because it might mean the Fed needs to raise rates even more, and it might mean you create an even bigger recession later.”
Business planning for a recession: startups & SMEs
How to prepare your startup
“There's blood in the water,” reports Business Insider. M&A dealmakers have started circling troubled tech startups looking for acquisition bargains while the threat of recession rises.
It’s time for startups to review their options and, if an imminent business exit is not the desired outcome, it may be necessary to raise capital, fast, to recession-proof your business. Make sure you’re doing the following three things.
1. Build relationships
The smartest business owners are always raising capital or preparing to raise capital. Always keep an open line of communication between you and your investors and prospectives, constantly build that relationship with them and do everything in your power to make it easy for them to invest.
2. Maintain solid financial practices
In addition to having plenty of working capital to enable you to weather the storm, the best way to prepare your business for a recession is to have solid financial management practices in place. You may have started this business out of love but you need to start thinking like an investor.
3. Always have a plan
You’re not the only one thinking about an impending recession, potential investors are too. Address the elephant in the room; don’t hope they won’t ask you about it. Anticipate their concerns and come up with a plan in regards to their money and the business’ survival.
And above all, be proactive. You know the saying: make hay while the sun shines. Ladies and gents, it’s time to make hay because a storm’s a’coming.
Raising capital quickly
Capital raising can take several months—so now is absolutely the right time to get started. The best way to accelerate the process is to make due diligence as easy as possible for potential investors.
As the Scouts say, “always be prepared”. Research, document and project (accurately) your numbers (users/customers, revenue, expenditure etc) now—not after prospects ask for them. Investors will want to know about the market potential, your business model, your marketing strategy, budgets and more. Make sure you have this information at your fingertips.
Make it easy on yourself. Download the capital raise checklist now.
How to prepare your SME or larger corporation
CEOs and CFOs would do well to be on high alert right now but with one caveat: as the economy contracts, try to avoid the immediate reaction to contract with it.
The fear of the unknown often pushes CFOs to adopt an overly conservative business strategy during a recession, heavily focused on cost-cutting and cash preservation. These mechanisms can of course be necessary in certain circumstances but they are not a fix-all solution, nor can they continue indefinitely.
Here are some concrete steps to take as we ride out this economic downturn.
1. Undertake a Strategic Review
A Strategic Review can uncover the main risks and opportunities that exist within your business. Once you know your position, you can review your options with confidence.
With Ansarada, you can upload, organize, and methodically review your critical information for free using our Workflow tool. Assign tasks, identify gaps, and mark off checklist items in a user-friendly, secure platform—without the issues associated with spreadsheets. Get started for free now.
2. Keep calm and communicate
Customers, employees and other stakeholders need reassurance that you’re open for business, that you have a plan and you’re putting it into action. Keeping them informed could be more important than you think.
3. Conduct contingency & crisis planning
Learn from previous recessions and focus on areas you know will be tested during the next one. Proactive scenario testing will enable you to reduce that fear of the unknown and feel more prepared.
Learn more: Strategies for Business Survival During a Recession
4. Look for opportunities
It’s not all doom and gloom; market disruption can lead to opportunity. If you’re able to see it, you might be able to take advantage of a bad situation by forming new partnerships, negotiating better deals with suppliers, or even proactive M&A if you have the resources.
Making the most of a restructure
Restructure doesn’t mean failure. If your business needs to make layoffs, restructure will be necessary. A proactive corporate restructure could also include the selling of assets and/or shares to raise working capital to weather the storm.
Finally, if at the end of it all, you are facing insolvency, don’t panic. There are options you can explore. When Virgin Australia went into voluntary administration during the recent Covid-19 pandemic, with severe cash flow and funding issues, administrators used Ansarada to assess all the data and execute the best outcome for all stakeholders within 10 weeks, while retaining the airline business.
Watch the video here for more detail: Restructuring with Ansarada