A guide to navigating a recession

You’ve probably heard a lot of doom and gloom about how we’re headed into a recession.

So, what is a recession? A recession is a time when the economy is declining rather than growing; typically this is shown by GDP reducing during two consecutive quarters. Basically, trade and industry are stalling and businesses are struggling to keep up as people spend less money.

How does a recession affect businesses?

In short: it’s tough, especially for small teams.

The longer version?

Well, big companies and organisations tend to reduce their spending - they stop hiring, they limit their marketing budget, and they spend less on research and development. This trickles down to smaller businesses that they would be hiring or outsourcing to.

Ultimately, SMEs and startups struggle with cash flow due to delayed payments and demand for products and services dies down. And guess what that means? They’ll eventually have an increased risk profile and struggle to access credit facilities.

How do you build a resilient business?

What’s the best way to prepare for a recession? The companies and businesses that thrive during times of crisis are the ones that take action, make the necessary changes, and are proactive. A 2019 Deloitte study asked CFOs which actions they had taken (or planned to take) to make their businesses more resilient against a potential economic slowdown. Here’s what came out of it:

35% had grown their customer base, shifted regions or changed market segments, while 22% planned to do so.
20% had worked on efficiency by improving their technologies, and 24% still planned to.
29% had prioritised their current customer base, while 16% intended to do so.
26% had already diversified their sources of financing, while 18% still planned to do so.
22% had focused on marketing efforts and 18% intended to do the same.
11% had created a list of freelancers, contractors, and gig workers to use when needed, and 9% still intended to do that.

What this shows is that it’s important for businesses to be able to adapt – not just leading up to a recession, but as a general rule. They need to think strategically and act quickly. Leaders need to decide what to prioritise their spending on and how to maximise the return on investments during a time of uncertainty and cash flow issues.

Those who think proactively will be impacted the least by a recession.

What we can learn from previous economic crises

Recessions lead to high-pressure environments, so businesses need to be adaptable and flexible in order to navigate these changes. Look at company finances with a strategic eye and plan for the worst. Since there will probably be lower sales numbers (and therefore less cash flow), companies overburdened by debt will be more vulnerable.

A great way to help free up cash flow is to look at the services in use and choose the ones that best cater to your needs.

Our Intuch solution was designed to reduce large upfront payments; instead, it offers the option of 12 equal repayments (with no risk if the hire doesn’t work out). This lets you stay agile and adaptable, giving you space to grow your business despite economic challenges.

There’s plenty of talk around mass layoffs during a recession, but the companies that survived the 2008 crash didn’t rely on this to reduce costs.

Operational improvements, like focusing on decision-making and investing in new technologies, were much more effective. In fact, reducing your team size can be detrimental to your business, since you risk lowering productivity and making it difficult to attract new investment. Instead, consider minimising costs by cutting hours, introducing performance-based pay, and furloughs.

Businesses that take the time to really know and understand their industry (and their target market) are much more resilient. That doesn't have to mean expensive research teams and pricey reports, either. Stay up to date on your sector by reading trustworthy articles, subscribing to relevant newsletters, and following knowledgeable people.

Should you be panicking?

Here's what you should be doing: be realistic, prepared and informed. Don't buy into the panic and paranoia. Prioritise training and skills development in your team, and build resilience. Take a long hard look at your budget (and don't take your eyes off it!)

Some sectors are in for a stronger year than others, with the IT industry in particular set for a global investment increase of 3%. Spending on data centre systems is predicted to grow by 11.1% and cloud management services should increase at a rate of 17.2.

Oh, and that IT skills shortage? We should see it ease up over the next year. Plenty of opportunity for upskilling and reskilling of current employees in the sector should see more qualified candidates on offer.

A potential recession is a scary idea, but it shouldn’t push you into a panic attack. Instead, take the time to strategise and prioritise over the few quarters. Look at how you can do more than merely survive an economic slowdown.

Here at Digital Waffle we take the time to get to know our clients, your market and needs, and offer an agile and tailored solution that can help take you to the next level, even during a recession. Get in touch to discuss your next move.