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Preparing for the Next Recession

Contact Author Lidya Mandala, Leviar LLC
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If you were open for business in 2008-2009, you would remember the Great Recession. Triggered by the subprime-mortgage meltdown, the major downturn in the U.S. economy was a devastating ordeal across all industries and caused the loss of about 8.7 million jobs.1 Annual reports released by the Administrative Office of the U.S. Courts for fiscal years 2008 and 2009 reflect a 30% increase in bankruptcy filings from 2007 to 2008 with another 34% increase in 2009. Unemployment peaked at 10% in fiscal year 2009 and bankruptcy filings reached 1.6 million in 2010. Even as the recession officially ended, it took several more years for the economy to recover and return to its pre-recession state.

Fast forward 10 years, we have been riding one of the longest bull sessions in U.S. history with recent unemployment rate at 3.7%, the lowest in nearly 50 years. However, recent forecast released at the Federal Open Market Committee meeting shows U.S. GDP growth slowing from 3% in 2018 to 2.2% this year and 2% in 2020. We can't help but wonder if and when the next recession is going to happen. Is it just around the corner? The truth is there will be a recession. It's just a matter of when and how severe. The real question is are you prepared for it? Here is what you can do now to help weather the next recession.

Assess and Adapt

Assess where your business is at compared to its past performance and your goals. Develop a benchmark, monitor your business closely and watch for red flags. Consider different scenarios that may occur during recession and what you can do to mitigate your risks. Be flexible to adapt quickly to changes in economic condition.

Cash is King

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Reserve as much cash as you can for emergencies and to support your operations and marketing activities during recession. Collect your receivables timely and be cautious when extending credit to customers. Avoid investing in too much inventory at this time.

Tighten Your Belt

Evaluate your operations from all angles. Can you streamline some of your processes? Can you consolidate different parts of the business? Do you really need to hire? Analyze and prioritize your expenses. Reduce as much overhead as possible and eliminate unnecessary spending. Review your agreements to find savings opportunities.

Create Alternative Revenue Sources

Customers will be spending less during recession. Do you have products or services that will meet their needs? Are you under serving certain markets? Develop partnerships for cross marketing and provide your customers with products and services that complement your business. If you are able to sub-lease your space, consider doing so.

Strategize for the Long-Term

Recession is a good time to look for lower cost options, develop a plan for turnaround and invest, so start creating your wish list. Look for opportunities to renegotiate contracts. Ask yourself what is next for the business? Are you wanting to relocate your store? Are you looking to expand or add locations? If you are considering to use debt to finance purchases, you may want to secure a loan or line of credit before recession hits as banks are more willing to do so when the economy is good. Just be sure there is no interest accrual until funds are actually withdrawn.

During recession, leverage low interest rates to refinance or acquire assets. It can be a great time to jump on opportunities to maximize your investment. It's also a good time to restructure your operations and marketing activities to improve efficiency. One thing to avoid during this exercise is sacrificing quality. It is important that you maintain your brand and reputation through downturns as it will be a competitive advantage going into recovery. We can't predict when a recession will actually happen and we can't predict the outcome from the recession. We can, however, plan for it, prepare for the worst and hope for the best.

References

  1. https://money.cnn.com/2009/01/09/news/economy/jobs_december/

Lidya N. Mandala is the Founder and President of Luvanti skincare and Meridian Bliss Spa and Wellness, Inc. Lidya developed and opened the first day spa concept that offers resort-style services and amenities in Austin, Texas in 2008. Lidya was recently a nominee for the 2019 Profiles in Power, an award honoring women of influence who are leading Central Texas to a better future. Prior to embarking on her entrepreneurial journey, Lidya held various leadership roles in M&A integration, product management, financial controllership, business management and strategy and global systems conversion at a Fortune Global 500 company. Lidya also owns a business advisory practice and is an active council member with the Gerson Lehrman Group.

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