Are you ready to survive a recession?

Are you ready to survive a recession?

Throughout my career I’ve managed companies, units and teams through recessions. From relatively minor blips to full-scale economic disasters, I’ve usually come out the other side with my company intact and ready to ride the wave to the next peak of growth. This has not happened by accident, but by using a set of principles and practices I bring into play as the storm clouds gather.

These are not entirely of my making. When I started in management, I came across the work of Sir John Harvey-Jones, a titan in British Industry who led ICI out of difficult times. His book “Managing to Survive” encapsulated a robust way of tackling recessions that I’ve built on ever since. 

It now seems certain the global economy is heading towards a recession, possibly even a depression. We may need these principles more than ever.

Focus on the core business

The core of your business keeps customers coming through the door. There will be temptations to deviate or diversify as you chase cash opportunities, or buy out cheaply priced competitors.

Resist.

Seeing stability and commitment from a supplier builds confidence. It suggests the management team are in control of the business and isn’t flailing about looking for ways to cut costs. 

Maintain relationships

Recently weeks we’ve seen companies taking advantage of customers by hiking prices or failing to protect their interests. Short-term cash flow has come at the expense of longer-term reputation and potential survival. 

Suppliers will be hurting, and while it might be tempting to take advantage, you must avoid it. Forcing a supplier to cut their prices to unsustainable levels might give you a short-term win, but you will lose out if you drive them out of business.

For both customers and suppliers, working with them to reduce costs rather than arbitrarily slash prices may be a wise move. Again you’ll be building confidence you are a business that will last the recession and cementing relationships for after the downturn.

Honesty with people

There’s a temptation to apply quick fixes to falling morale and rising uncertainty. Promises that “jobs won’t be cut” give a short-term boost, but they either limit your options or undermine credibility when redundancies become inevitable.

Open, honest communication with employees is important and while the message may not be great, it is one they have to hear. 

The same applies with external audiences. If lay-offs or bad results are coming, it is better to place honest communication around the bad message than try to hide it with glib and meaningless statements about “looking at options”.

Build a cash base

Spending will be reduced, hiring will be frozen, and investments delayed. If there are assets in the business that aren’t being used, they can be sold.

The aim is to build a reserve of cash that will help see the company through hard times. This can mean holding off on payments to shareholders even though the business is profitable or has a large cash reserve.

Manage and monitor

The failure of a customer or supplier can be devastating. Significant amounts of cash can be tied up as administrators try to sell a failed business, while any further income is lost. Replacing this cash could be nigh on impossible. The same applies for losing a key supplier – being unable to source products or components could harm your business every bit as much as losing a customer.

Your finance team must be on top of cash flow and credit lines. Firm but fair action is essential to keep cash flowing through the business. This will cause tension between sales and finance when customers miss an invoice date. However, this is not the time to give way to the salesman’s “but they’re a good customer”. A good customer pays their bills on time.

Equally, you must ensure you pay your suppliers on time. Holding off for a few days to correct a cash flow short-fall will harm your standing. If you need help later, you’ll find them less willing to offer support.

Honesty with yourself

The most important principle is to be completely honest with yourself. You’re a business leader who will have to make hard decisions that affect people’s lives. Hiding behind the hope “if we just win one more customer” or “if that supplier will give us a discount we’ll be OK” is a fool’s errand. You may think delaying a decision to lay 10 people off another month is a smart move, but if it means laying off everyone because you’ve run out of cash then fool on you.

Not that you should be cold and calculating; these decisions will be emotionally draining. However, they need to be made, and everyone will look to you to make them. If you make firm, fair and timely decisions, you will win more respect and loyalty than if you let things build to a crisis point.

Last words

For all the talk of leadership in business, robust management keeps companies alive through recessions. If you’re not up to the task finding someone to support you who is shouldn’t be seen as a failure. However, appointing a COO or senior manager doesn’t mean you can abdicate the responsibility for making these tough decisions to someone else.

Ultimately, this is your business and if you want to keep it after the recession you will have to manage it to survive.

About Ross A Hall

A business researcher and writer, I help companies find new markets, form strategies and build successful businesses.

Find out more about my work.

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