Looming Recession
The challenges of rising inflation, low unemployment, and the announcements of the Reserve bank to increase the OCR and the flow to interest rates are growing ripples through many in the business market place, with business owners now considering what will 2023 bring, and what type of recessionary environment might be looming.
However, the likelihood of a recession doesn't mean the same thing to everyone. If you are worried about a closing market or recession the first question you need to ask yourself is: Is my industry more, or less affected by a recession? What happened last time? For some, a closing market can bring a real upswing in work, for others the volume doesn't change - just the type of work, for others it’s a real concern (depending on the driver/sector of the recession).
The second question to ask is: What is the strength of our financial position? What is your cash position (how much cash runway do you have and need to maintain)? What amount of revenue is currently contracted forward as recurring revenue if possible? What is the strength of your balance sheet to draw on if necessary? What is your liquidity like, and your asset base? If you are thinking ahead, start reinforcing your financial position as much as possible now.
The third question is: What is the strength of our brand position in the market? How well are you known? What is the breadth of your customer base? What is your position relative to your competitors? What is your customer loyalty like? (Is this just your opinion - or do you have data to back this up?)
The answers to these questions will shape the courses of action open to you and what indicators you might look for in your contingency plan, and what activities you might undertake as part of your recession strategy (and if you don't have one we should talk). This could range from a 'may-day' call, to 'refilling the tank', to 'putting down the accelerator’ and making acquisitions (or a number of other scenarios). From this, you will understand what levers to pull for your circumstances.
Research by Canterbury University shows that resilient organisations have 13 qualities that make them survive challenges best. The most important of these is a highly engaged staff team who give their discretionary efforts, high situational awareness of their market and a culture of innovation and adaptation, strong partnerships who want to help each other outside the walls, and good leadership that makes all of the aforementioned work. It makes perfect sense! How do you stack up?
In general, we also know from a practical sense, that it’s about making sure you have a clearly articulated strategy to navigate the stormy seas so you can make short term decisions with the mid term in mind (and if you have a current strategy it is time to review it with this lens over it). This then re-shapes the structure you will need to best navigate the situation. The lessons from CEOs who have previously done this is to do it early - cut once-cut deep. You need to take complexity out of your business and shift resources to focus on the core activities and be proactive in continuing to develop your market. Tighten up on your general and administrative costs and focus on your margin.
The shifts in the market are cyclical, the reasons are always different but the impacts and ways to navigate them are similar (but nuanced). The key - start preparing now.
This article was contributed by Greg Allnutt, Partner and Strategic Advisor.