Posted: 20 Jan, 2023
The World Economic Forum’s annual meeting is taking place in Davos this week, with economists, business executives and world leaders warning of a long and deep recession in 2023.
But while recession looms, there has been some good news for the UK economy in recent days. First, it was reported that the UK economy unexpectedly grew by 0.1% in November, helped by demand for services in the tech sector and a boost in pub and restaurant spending as people went out to watch the World Cup. Second, a new report by PwC indicates that nearly one in four global chief executives want to grow their companies in Britain, underscoring the fact that the UK remains an attractive place to do business.
However, despite hints of optimism, recession is still on the way. Businesses need to act to ensure they are prepared to cope with the knock-on effects. Clients will make budget cuts or terminate contracts completely, banks won’t be lending, customers may struggle to pay on time, and you may find yourselves in need of new suppliers when yours go bust.
There are a multitude of things that could affect your business during what is expected to be a year-long recession. Here are five ways you can prepare your business for recession:
5 Ways To Prepare Your Business for Recession
1.Ensure you have tight control on your cash management
Cash is king and that is no truer than during a recession. The first thing a turnaround professional will do when engaging with a company in trouble is to establish a robust cash flow forecast to understand where cash is going, where it is coming from, identify risks and start acting to reduce them.
But you don’t have to wait for a turnaround professional to do this. If you can gain good visibility of your business’ finances, you can identify where issues might arise and spot problems before they start to materially affect the business.
2.Speak to your customers
In times of recession, collecting money owed becomes more difficult. To your customer, who may also be waiting for payments, their debt with you isn’t a priority to pay until they want to order from you again. It is therefore a good idea to speak with your customers about taking a deposit so you can guarantee at least some cash and reduce your risk.
3.Manage your expenses
If your cash flow looks tight, you might consider your outgoings and cut anything that isn’t necessary. Ask yourself: Is this a must-have? Is this a discretionary item that can be eliminated or paused? Is there a more competitive supplier to source this product from? It might surprise you how much cash can be saved when you add up lots of small savings over several months.
4.If you have inventory, manage it carefully
If you have inventory, consider where you’re holding too much. You might look into implementing a Just-in-Time (JIT) inventory management system where you only ever have the minimum amount of inventory on hand to meet demand. It’s a proven technique that can improve efficiency and increase profitability by eliminating waste. But be aware that establishing a JIT system relies on establishing long-term contracts with trusted suppliers and a good inventory management system or software to help automate processes, accurately forecast demand and ensure the system runs smoothly.
5.Be bold and ready to take advantage of volatility
A recession is a buyer's market. If your company is in a good financial position recession creates unique opportunities and you should be examining or creating lists of potential acquisition targets and should be prepared to act. You may find yourself making a good deal or able to buy assets that companies had been previously reluctant to sell.
Whatever your business’ size, industry or cash situation, taking action now to improve the position that your company will enter the recession in will be time well spent.
If you’re concerned about the viability of your company don’t delay asking for help, contact a turnaround professional.
TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804 0116
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