Recession worries have jumped up the list of economic concerns for middle market business owners while confidence in the global and U.S. economies has fallen from last year’s levels.1 Business owners point to the hobbled U.S. economy as having the greatest potential impact on their business and their greatest barrier to growth.1 Fortunately, they still place their greatest confidence in the outlook for their own businesses - sixty-nine percent expect a much or at least somewhat better economic future for their businesses.1
While the economic signals may be flashing yellow, that doesn’t mean it’s time to move your business into a reflexive crouch, even if the 2008 recession holds painful memories. Preparing for the next downturn starts with a frank assessment of your business’s positioning today and then planning for the bumps and opportunities that will come with the next slowdown.
Lessons from 20082
The 14 percent of public companies that grew during the last recession:
- Acted Early
- Took a long-term perspective
- Focused on growth, not just cost cutting
A downturn assessment
Preparing for tomorrow’s downturn starts with questions about today’s strategy.
What are the prospects for your industry in a downturn? A business in a mature, cyclical industry, e.g., auto dealers, can expect disruption during a slowdown. On the other hand, fast-growing businesses with breakthrough technologies might almost be immune to a cyclical downturn. Research shows that technology businesses fared much better in the last downturn.2
How nimble can your business be? Slowdowns might require you to reduce risk and stretch cash. If you are amid a growth initiative with high investment and expansion momentum, slowing things down may not be easy and quick.
Where is my business most vulnerable? Downturns can bring sales dips that are exacerbated by the loss of key segments or customers. Slowdowns can also expose you to financially weak customers who can’t pay their bills. Some businesses may depend on key suppliers or partners whose weaknesses might be transmitted to your products or services.
What resources do you have to sustain you during the downturn? Cash reserves and liquidity are invaluable during tough times. Lines of credit and equity backers with additional capital are equally important. Multi-year customer contracts (assuming the customers are financially sound) can keep the business going in a slowdown.
The path to preparation
Your downturn assessment sets the starting point for your preparation. SunTrust Business Pulse Research shows that many businesses have already started taking actions to prepare for a downturn. That preparation could give them an edge to help them actually grow through a slowdown. During the 2008 recession, 86 percent of $50 million plus public companies shrunk. Yet, 14 percent continued to grow (at a 9 percent rate) by acting early, maintaining a long-term perspective and focusing on growth, not just cost cutting.2
In your plans to avoid recessionary pitfalls, think about these preparatory strategies.