With a recession being predicted for 2020, your company needs to take action now. History shows that businesses preparing early for economic downturns tend to perform better than those that do not. Companies unprepared for a recession take longer to recover. Learn how your leadership team can recession-proof your business to prepare for the next downturn.
Discuss Strategic Options
Meet with your leadership team to discuss which changes can be made within your organization, the pros and cons of each, and how you can avoid making reactionary decisions next year. Talk about which non-essential expenses can be put on hold and whether any budgets or salaries can be trimmed. Determine which new product or market segments you can pursue and which minor cuts can be made to prevent drastic cuts going forward. Determine which cuts not to make, such as with research and innovation, to avoid being at a disadvantage when the economy rebounds.
Anticipate Various Scenarios
Create a variety of realistic scenarios reflecting sources of uncertainty that affect the economy. Examples may include trade tensions, political issues or financial markets. You may create economic scenarios around a baseline projection, then for each scenario, determine the likely impacts on your industry and company. This exercise can stress-test your plans and measure whether your business may survive various outcomes. You can identify the largest potential risks and create quick responses where needed. You also can identify and guard against risks of disruption by determining how to be resilient.
Create a Plan Across Three Levels
Your leadership team needs to consider offensive and defensive moves. For instance, to maintain viability, your company can reduce inventory and more aggressively manage receivables and payables to protect cashflow. They can streamline the core business to increase efficiency and flexibility. To build resilience, the organization can keep financial buffers to respond to unexpected opportunities or threats. They also can shrink planning cycles to increase adaptiveness. To increase vitality, the business can assess competitors’ vulnerability and take advantage of weaknesses by investing in new capacity or M&A. They can also implement metrics to measure your company’s capacity for growth.
Perform a Risk-Benefit Analysis
After your list of options is narrowed, ask your CFO to calculate short- and long-term financial costs and gains of each. The CFO will gain the financial insight needed to create a plan to position the business for short- and long-term success.
Present the Financial Plan to Leadership
The CFO should present their plan to the leadership team for further discussion. The plan should show a clear, data-based solution that weighs all options, considers the numbers and makes financial sense. Once leadership has evaluated and approved the plan, they can communicate changes to each department to make necessary adjustments.
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