Recession? Realities.Aug 18, 2022
Are we in a recession? Headed for a recession? In today’s article, let’s respond to realities rather than react to rumors. Read on as we explore how to align your actions to strategic goals, why it’s critical to develop a position of strength (regardless of headwinds), and how you can take action now – today – to improve your strategic, financial and business positions.
What is a Recession, exactly?
Let’s not assume that everybody means the same thing when discussing a recession.
A recession is a period where the economy contracts or slows down. This can happen for many reasons, but it is usually caused by a drop in demand for goods and services. In other words, people are spending less money, and this causes businesses to produce fewer goods and services. Recessions are usually measured by economic indicators such as GDP, employment rates, and inflation rates.
When many of us think recession, our minds go back to 2007-2008, when economic pillars collapsed. COVID was technically a recession as well, though it didn’t last long and was caused almost entirely by non-economic factors.
Whether in a new recession or a continuation of COVID-related factors, businesses were already dealing with business downturns and issues. And often, perception drives behaviors – for many of us, it certainly feels like we’re in a recession.
From a small and mid-market business position, the question isn’t how we got here but rather: what are we doing about it?
Or maybe a better question is: What will you not do about it?
Reacting, Responding, Resilience
There are several conventional-wisdom ways we might react to a recession.
- Invest in your business and try to find new ways of generating revenue
- Diversify the business and move into other industries that are not as affected by a recession
- Hunker down with cash reserves
- Layoff part of your workforce
- Sell products at a lower price, or try to offer more for the same price
The list goes on. Are these good ways to react to a recession? That’s up to you and your business, but let’s first try and distance ourselves from the idea of reacting at all and instead put effort into responding to a recession – or any business headwinds.
Reactive measures are often knee-jerk, made in a hurry or panic. They’re generally unsustainable measures that can only get you so far. Many of the ideas shared above can seem like emergency measures.
Responsive measures, on the other hand, apply some what not to do thinking and behaving.
- We’re not going to move into other business sectors or verticals because we don’t have the infrastructure for it.
- We’re not going to sell our products at a lower price (not if we can help it anyway) because our brand and business is not built on being “the cheapest,” and perception is hard currency to get back once spent.
- Or, we will not raise prices because our customers have always depended on the best price. We don’t have the structure in place to change that model.
What these responsive measures do right is make decisions aligned with existing business goals. Anticipating and weathering a recession depends mainly on how you’ve structured your business already.
Back (or Begin) to Basics
Let’s talk nuts and bolts. Here are five actions a well-structured business will be doing regularly with their CFO, putting them at an advantage for any downturn. If you haven’t done these – in a while or ever – it’s time to call a CFO today and get started.
Conduct a SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It is a framework to analyze the environment in which an organization operates by identifying four fundamental aspects of its place in a situation.
Refine Your Business Plan
A business plan describes the nature of your business, the product or service you offer, and how you operate. Its purpose is to provide an overview of the company’s operations and a framework for future decision-making.
Suppose you built a business plan once two years or twenty years ago when you started your business. And haven’t intentionally adjusted it since. In that case, you’re not alone – too many companies create a business plan or revenue model once at the start and never give it meaningful attention again, even as market and business dynamics dramatically shift and change around them. Figuring things out as you go is not a business plan. Smart companies continue to modernize their business plan.
Effective Resource Allocation
Resources in your business should be allocated to maximize your company’s efficiency and effectiveness. It’s wise to have policies that define how resources are distributed among various operations, including internal activities and those engaged with other organizations.
Policy, Process and Procedure
If you’ve noticed the last three suggestions, they’re all policies. They’re structured in the business and aligned to existing goals, strategies and models. How are your systems and processes? The stuff that runs your business should be predictable, formalized in some way, and systematized. If you’re operating under assumed knowledge – and many small businesses are – you have no anchors in rough seas.
Measure and Reward Performance Throughout the Business
You’ve heard the maxim a million times – measure what matters. In tougher business climates, morale really matters. Recognizing high performance or goals achievement does a few specific things that help your business:
- Having measurable targets tells your teams there’s a plan.
- Managing to those goals drives focus.
- Achieving or exceeding goals indicates success and progress – even small wins can be cause for celebration.
- Recognizing people, teams or departments increases morale and increases loyalty and performance. It’s one thing to declare “all hands on deck.” Still, when employees positively experience a culture of togetherness, it eases or eliminates a lot of turmoil and friction that could make a challenging situation terrible.
What If None Of That Describes You?
You can still get through a downturn or recession. It just might be a more brutal slog. So here are some don’t do’s that, like the basics, you should try and implement today. Right now.
Do Not Stop Marketing
Sometimes small and mid-market companies see marketing as a luxury or a nice-to-have. Marketing is the first thing cut when it’s time to tighten the belt in a recession. What really gets cut is your fuel line to your sales furnace. Instead, you might need to change your marketing to focus more on existing clients, cultivating a loyal customer base. This can often be easier and cheaper.
Do Not Launch New, Unknown Products To Your Customers
Stick with what you do now and do best, focusing on your core competencies. That said, do launch products that might be new to you but are known to your customers. This expands your business. Remember when we talked about making business decisions aligned to your goals, objectives and strategies? That alignment should help drive decisions like these.
Communicate To Customers, Partners and Suppliers
You both need to know how the other is doing to support efforts. Customers are looking for confidence that you’re resilient, active, innovative or at least steady. You’re looking for the same thing from your vendors and suppliers. At the same time, you want to know what’s happening with expiring contracts – will they renew at existing prices? Will they renew at all?
Keep those lines wide open. Be as transparent as you can and expect transparency. Sometimes renegotiation of terms is in order during a recession – as long as nobody feels caught off-guard, you should be able to conduct amicable business.
Measure What Matters. More.
Accelerate customer or sales reviews. If you’re used to looking at sales stats monthly, do it weekly. If you’re used to looking at sales close rates weekly, do it on weekends vs. weekdays. Micro-focus metrics are more critical now than ever.
The Most Important Advice We Have
Get a CFO. Seriously. Going it alone, winging it, or expecting more from advisors that lack financial experience, depth or strategic understanding are the biggest mistakes you can make when trying to succeed through a recession. The right CFO will take the guidance we’ve shared here (and much more) and quickly put analysis and action into motion.
A permanent hire might not be the right move or the necessary move. Consider a fractional or part-time CFO. ProCFO Partners, for instance, has a broad and deep network of experts that leverage each other’s expertise just for you. If you’re struggling, losing sleep, or facing severe unknowns in the face of this recession – we can help. Just start a conversation, and we’ll explain all the ways how.