A recession may be inevitable – here’s how to prepare

| April 1, 2020
Newspaper headlines depicting the economic depression

For the last several months, pundits and analysts have been noting the ominous economic signs that tend to presage a recession. At the same time, Australian businesses, as ever, have tried to remain optimistic that the economic headwinds would pass. Now, with the global coronavirus pandemic spreading and travel restrictions taking hold worldwide, a recession isn’t just likely – it’s already happening.

For many big businesses, this new reality means having to put off long-term capital plans and buckling down to wait out the downturn. Sadly, many small businesses won’t be so lucky, with some sectors already sounding the alarm that mass shutdowns may be unavoidable. For businesses in the middle, however, there may still be hope if swift actions are taken.

To help mid-size business leaders chart a course to get through this current crisis, here is an overview of what steps to consider to prepare a business to ride out the storm.

Cost containment is key

As is the case whenever a business faces threats to its bottom line, there are only two ways to respond. The first is to move aggressively to grow their way out of financial danger, and the other is to cut costs and try to protect their revenue streams. In the current circumstances, the first option is likely out of the question for most businesses (excluding eCommerce businesses, who may see a windfall). That means the only real, viable response is to take steps now to contain costs and preserve as much cash as possible.

To do that, the first order of business is to examine all workflows to eliminate redundancy, and to automate routine processes to reduce costs. Doing this will not only squeeze additional efficiencies out of existing business operations but will result in a much leaner organization that’s ready to emerge from the downturn and hit the ground running when the time is right. For that reason, all changes to business workflows should also aim to preserve the company’s ability to scale back up when conditions improve.

Alter day-to-day operations

Right now, it goes without saying that there are likely some disruptions to normal business operations that are about to become unavoidable. To mitigate the damage that could do, now’s the time to create effective contingency plans to ensure business continuity in any event. Step one is to immediately make plans to enable flexible work schedules and support remote workers. The former will make it possible to minimize danger to staff by reducing the number of people working at the same time. The latter will prepare the business to survive the kind of economic lockdowns currently in progress across much of Europe.

Step two is to look for ways to alter consumer-facing activities to keep sales strong and critical revenues flowing. Small businesses all over Australia are already beginning to do this to great effect. For businesses that operate retail outlets or rely on showrooms and the like, now’s the time to scale up online order processing capabilities. Online platforms like Shopify make opening an online pop-up shop easy, and that’s an excellent option for Australian businesses in a pinch. And for those opting for scaling up home delivery operations, easy access to fuel card comparison data makes keeping costs manageable more than possible.

Adjust staffing, avoid layoffs

One of the hardest things for any business to face when a downturn happens is figuring out how to maintain appropriate staffing levels through the tough times. In this specific case, however, layoffs are especially undesirable. That’s because Australian businesses are coming out of one of the most competitive labour environments in recent memory, and faced higher-than-normal talent acquisition costs for several consecutive years. Letting go of top talent after that would add serious insult to injury.

On top of that, the Government is already turning to its Great Recession playbook to stimulate the Australian economy, which may serve to render the coming recession sharp, yet short. In that circumstance, it would be quite short-sighted for businesses to sacrifice their best employees. For that reason, it’s preferable to try share-the-pain approaches, such as work-sharing arrangements or reduced hours instead of layoffs. If managed well, such measures can protect a business from financial harm while also protecting its most valuable resource – a talented workforce.

This too shall pass

In the midst of making these kinds of preparations, it’d be easy for even the most seasoned entrepreneur or business leader to take a dim view of their business’ prospects. Still, it’s important to recognize that the Australian economy has proven itself robust through the years, most recently by averting the kinds of deep recessions that befell much of the world in the recent past.

It’s critical to remember that this isn’t a normal situation, though, and to stand ready to do whatever it takes to shepherd your business through the difficulties. The bottom line, though, is that what’s happening won’t last forever, and like all things, will soon pass. So, remember – no worries, in the end, she’ll be right.