What do you want your business to look like when the recession is over? What about three years later? The answers to these questions should help you create your resilience strategy and make all of your decisions easier if the economy deteriorates.
According to Bain & Company, taking a ‘future-back’ approach allows your management team to build out a strategy for outperforming your competitors both during and after the crisis.
Figure 1: Incorporating resilience into your business strategy yields concrete results.
Assess your current position
To profit from a downturn in the economy, you must first examine your company’s financial and strategic position realistically. If your company has a solid financial position but a weak market position, for example, this gives an opportunity to focus the company on a defensible core offering, invest to grow this space, and reduce costs to fund this future business path.
Figure 2: Assessing your company’s strategic and financial status is the first step in creating a recession plan.
Treat cash as king
Lower sales and less cash are unavoidable during a recession. The first, and possibly most essential, measure you can take to ensure you come out on the other side in excellent shape is to strengthen your company’s financial health in advance of difficult times.
Practice prudent pruning over aggressive cost-cutting
‘Losing’ companies behaved under the’misconception that dramatic cost-cutting would be enough to withstand the storm,’ according to a Bain & Company research of nearly 3900 corporations during and after the global financial crisis. They harmed themselves by attempting to’slash and burn their way to the other side,’ eliminating research and development, ruling out acquisitions, reducing marketing and sales, and laying off key personnel in a frantic attempt to save money.
Instead, think about how you can reduce fixed expenses and manage working capital effectively to improve cash flow and develop resilience against demand fluctuation.
Balance your finances
One of the highest priority actions in anticipation of an economic downturn, according to a Deloitte study of over 1,000 CFOs, was to stabilize their finances. Furthermore, a McKinsey analysis of post-GFC company performance indicated that a consistent element among winners was an organizational focus on balance sheet management. You can reduce debt, consolidate your debt, and enhance your overall financial health by taking a few simple steps right now.
Look beyond layoffs
Unfortunately, layoffs and redundancies have become inextricably linked to economic downturns. It doesn’t have to be this this. Layoffs hurt both employees and businesses. For a variety of reasons, this is correct. To begin with, redundancy and pay-out costs immediately deplete cash reserves. Second, as the economy improves, employing and training new personnel is a substantial expense that businesses should avoid. Third, the long-term societal ramifications of such a shift may be even more costly.
According to a Harvard Business Review research, companies that relied less on layoffs and more on trimming operational costs to decrease overheads fared better than their counterparts during the Great Recession. In addition to layoffs, HBR advises firms to consider hour reductions, furloughs, or performance compensation as alternatives.
Streamline and fine-tune
During the global financial crisis, Bain & Company investigated Costco’s strategic approach to streamlining operations and processes. Using smart streamlining techniques like these will help you not only keep the ship afloat, but also improve your revenues and profitability during and after the recession, just like Costco did.
Focus on customer retention
Even a 5% increase in client retention can result in a 2595% boost in earnings.
As a result of the recession, some business owners go into panic mode and try to gain new clients by stretching their businesses. Concentrating your efforts on improving relationships with existing customers and maintaining focused on your core audience, on the other hand, is a more profitable strategy that will not jeopardize your company’s future.
Graph 3. According to a Deloitte survey of 1000 CFOs, three of the top four recession-fighting tactics were customer-focused.
Focus on core competencies
During the previous crisis, underperforming companies tended to panic and expand outside of their main industry, chasing investments in the trendiest trends and services before they completely burned out.
Diversification has its place, but in a time when efficiency is crucial, focusing on perfecting your core product and focusing on what you know is successful is the best way to recession-proof your business.
Be a ‘must-have’
Individuals and businesses are obliged to ‘tighten their belts’ in order to survive during a recession. If you provide a “If you have a “must-have” product or service, the recession will have a far less impact on your company. What can you do to help yourself? “very necessary”?
Embrace technology
During a recession, many businesses retreat inside their shells and enter preservation mode. Economists, on the other hand, argue that a downturn may and should promote the adoption of innovative technology. Having the vision to identify which important activities should be digitized to increase value or enhance efficiency is critical to achieving a competitive advantage and keeping it once the recession is over.
Get on the offensive early
Figure 4: ‘Winning companies increased their profits during and after the recession, while losers stagnated’ (Source: Bain & Company).
“Don’t let a good crisis go to waste,” as the phrase goes. It discusses how economic volatility might provide an opportunity to gain a competitive advantage. According to our study, being in ‘attack mode’ throughout the recession while your competitors focus on survival and wait for the cycle to clear is a sure-fire strategy to acquire a competitive advantage.
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This report is a collection of tried-and-true resilience tactics used by world-class firms to weather the storm and emerge stronger and more prosperous.
How do you become wealthy following a recession?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).
What things sell well during a downturn?
When it comes to some types of items, it doesn’t matter how the economy is going. Even in difficult circumstances, people will require “essential” products. Selling these things at a reasonable price will not necessarily increase your profits, but it will help you maintain regular client traffic and increase the likelihood that consumers will be enticed to buy more expensive items, allowing you to cross-sell more profitable items.
Everyone has to eat, and selling food can be a wonderful way to diversify your product options during a slump. Pre-packaged foods, such as chips and cookies, are shelf-stable, allowing you to keep your stock from spoiling while you raise consumer knowledge of your increased offers.
Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal hygiene products are always in high demand. Offering these goods can position your company as a valuable resource for customers during difficult times.
Even in difficult times, people want to look well. They may not be able to buy a new wardrobe or pair of shoes, but they can generally get a makeover or try on a new nail color. Businesses that provide these products and services are more likely to survive economic downturns.
Pets are considered members of the family and are treated as such. Even in difficult times, people continue to spend money on their dogs, including supplies, medical treatments, and grooming.
During recessions, people continue to dress. Clothing, undergarments, socks, and shoes all need to be replaced. If your company sells essential apparel, it will most likely be able to weather the storm.
Even during recessions, people continue to have children, and children are parents’ top priority. They’ll continue to spend money on clothes, diapers, formula, pediatric care, and child care services.
What industries are the most recession-proof?
Healthcare, food, consumer staples, and basic transportation are examples of generally inelastic industries that can thrive during economic downturns. During a public health emergency, they may also benefit from being classified as critical industries.
Are products less expensive during a recession?
Lower aggregate demand during a recession means that businesses reduce production and sell fewer units. Wages account for the majority of most businesses’ costs, accounting for over 70% of total expenses.
Is it beneficial to have cash during a downturn?
- You have a sizable emergency fund. Always try to save enough money to cover three to six months’ worth of living expenditures, with the latter end of that range being preferable. If you happen to be there and have any spare cash, feel free to invest it. If not, make sure to set aside money for an emergency fund first.
- You intend to leave your portfolio alone for at least seven years. It’s not for the faint of heart to invest during a downturn. You might think you’re getting a good deal when you buy, only to see your portfolio value drop a few days later. Taking a long-term strategy to investing is the greatest way to avoid losses and come out ahead during a recession. Allow at least seven years for your money to grow.
- You’re not going to monitor your portfolio on a regular basis. When the economy is terrible and the stock market is volatile, you may feel compelled to check your brokerage account every day to see how your portfolio is doing. But you can’t do that if you’re planning to invest during a recession. The more you monitor your investments, the more likely you are to become concerned. When you’re panicked, you’re more likely to make hasty decisions, such as dumping underperforming investments, which forces you to lock in losses.
Investing during a recession can be a terrific idea but only if you’re in a solid enough financial situation and have the correct attitude and approach. You should never put your short-term financial security at risk for the sake of long-term prosperity. It’s important to remember that if you’re in a financial bind, there’s no guilt in passing up opportunities. Instead, concentrate on paying your bills and maintaining your physical and mental well-being. You can always increase your investments later in life, if your career is more stable, your earnings are consistent, and your mind is at ease in general.
Are automobiles less expensive during a recession?
Houses, like cars, become less expensive during a recession due to lower demand more people are hesitant to make a significant move, thus prices drop to lure the few purchasers who remain. Still, Jack Choros, finance writer for CPI Inflation Calculator, advises against going on too many internet house tours. “You need a job to get a mortgage,” he advises, “and you might have a good one that you think is recession-proof, but you never know.” “During these periods, banks and governments can implement a variety of credit programs and stimulus packages, which can cause rates to fluctuate unpredictably.” As a result, he suggests using adjustable rate mortgages with extreme caution. If your financial situation is uncertain, Bonebright advises against refinancing your mortgage. “Keep in mind that you’ll have to pay closing charges, which might be quite high. Also, if you’re planning to employ cash-out refinancing to pay off bills, make sure you won’t end up with greater debt after you’ve refinanced.”
Is cash useful during a downturn?
In today’s economy, where stock market circumstances are unpredictably volatile, knowledgeable investors are looking for more reliable assets to avoid losing money. While our economy appears to be improving, recent events have had a significant impact on the stock market. History has demonstrated the importance of having assets that can withstand a downturn. When it came to how to protect wealth amid a slump, the Great Depression was one of the finest teachers the world has ever seen.
Gold And Cash
During a market meltdown or downturn, gold and cash are two of the most crucial items to have on hand. Gold’s value has typically remained stable or only increased during depressions. If the market is falling and you want to protect your investment portfolio, it’s in your best interests to invest in and safely store gold or cash in a secure private vault.
As a general rule, your emergency fund should be at least three months’ worth of living expenditures.
While banks may appear to be a secure place to store money, safety deposit boxes are neither insured nor legally accountable if something goes stolen.
Furthermore, the Federal Deposit Insurance Corporation (FDIC) will not always be able to cover your money in banks.
Investing in physical assets such as gold, silver, coins, and other hard assets is preferable.
Real Estate
During a slump, real estate is also a smart strategy to secure wealth. Another investment possibility that often retains its value and appreciates is debt-free real estate ownership. Of course, the location is a big consideration. Near colleges is an area of interest for wise investors because these locations tend to weather depressions better. However, the long-term viability of this wealth-protection strategy is contingent on the soundness of the local economy.
Domestic Bonds, Treasury Bills, & Notes
During a depression, mutual funds and equities are considered high-risk investments. Treasury bonds, banknotes, and notes, on the other hand, are more secure assets. The United States government issues these things. When they mature, they pay the buyer a fixed rate of interest.
You can choose short-term bills that mature in as little as a few days depending on your demands.
If you’re searching for a longer-term investment, there are notes available that mature in as little as two years.
Foreign Bonds
Many experts in the past would have suggested foreign bonds as a depression-resistant investment option. Recent events have demonstrated that this is not always a safe bet. Pandemics and other market instability around the world have rendered this a risky investment, as all countries’ economies are affected.