How to Manage Your Business in a Recession
One only has to turn on the radio or TV these days to see the long lasting effects of the current recession. Not only is it deeper than any recession in living memory, it is now threatening to be one of the longest.
Although there are many indicators of recession, the main lag measure is the impact on unemployment. Whilst the economy as a whole may be in recession, some companies have faired well due to their niche or market segment. On the whole, however, most will have seen a downturn in orders, a tightening of credit terms and probably some bad debts as a result of other businesses failing before settling their debts
This far into a recession, the chances are that you will have destocked to a minimal level and have as little cash tied up in the business as possible. You should have also trimmed your expense base to match the activity levels; no matter how hard this may be at the time, it is better to survive and rehire than to go out of business completely
Capital expenditure should have been reined back too - no point in investing in equipment of new premises until you can see a reasonable way ahead with some certainty over orders and customer and supplier survivability
It may be that you went into the recession in a very strong cash positive position. If that is the case, you may be looking at some acquisitions for opportunistic growth. Certainly, there are some bargains to be had if you can make the acquisition without damaging your debt position beyond what you can comfortably service.
One of the keys for any business is to have a spread of both suppliers and customers. This will enable you to survive the loss of a major account or the failure of a key supplier. If you have more than 50% of your sales to one customer group, then you should work hard to attract additional customers. Likewise, if you are heavily dependent upon one supplier, you must seek out new sources of materials to avoid price squeezes or failure. You may have a good business - but only if all parts of the supply chain remain in tact
The biggest danger of a recession is not surviving but growing healthily as the downturn ends. With orders flooding in, you feel invincible. You order more stock, rehire people with the result that your cost base balloons before you have sold your products and been settled. This cash flow squeeze kills perfectly good businesses. Make sure that you discuss your gearing up needs with your funders and ensure that you do not overtrade. You may consider factoring (selling your debts in exchange for cash) your debts in the short term to make sure that you have sufficient free cash to support the business.
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