“Entrepreneurs often know they should be prepared for tough times, but they don’t always take the necessary steps,” says Tom Corner,
There is a high likelihood that the Global Economy will enter a recession in 2020. In fact, one may have already started.
The global Economy is shutting down at lightning speed as schools and businesses instruct people to go home and wait the new coronavirus out. That is having a huge ripple effect on the economy as people curtail spending on about everything but toilet paper, pasta and hand sanitizer.
The pace at which all of this is happening is unprecedented
The world economy has experienced four global recessions over the past seven decades: in 1975, 1982, 1991, and 2009, We have never had a global recession or market meltdown triggered by a public health crisis in modern history. Recent recessions and market meltdowns were triggered by economic/financial causes. But now, we have a market meltdown triggered by a global pandemic.
The meltdown has been savage, globally. This is the worst crash in the shortest time, A prediction, which have been made with reasonable accuracy by experts on this subject matter, is that the global economy may slip into recession in 2020.
True, these are unnerving times. In panic situations like this, it is important to stay calm. Unfortunately, economic downturns are a fact of life when you’re running a business. But there are steps you can take now to prepare your business to weather a storm and emerge even stronger.
If you owned a car, and you knew for certain that it would crash and burn in August 2020, what would you do?
Well for one, you would quickly buy insurance, to make sure you could buy another car. What else? You might consider selling the car to ensure that it’s not even an asset you own when it crashes. What else? Buy another car, so even when insurance is getting your claim prepared, you have a backup.
Great answers and they are all correct.
In effect, you will take appropriate risk management measures to protect yourself from loss. By buying insurance, you are retaining the risk of the car crashing, but you are limiting the downside exposure to you. By selling the car, you are avoiding the risk altogether. In buying another car, you are not just hedging but diversifying your carpool to ensure that the fall in one car does not affect your ability to move around
So, what is a recession?
A recession is two quarters of negative growth, i.e. 6 months of the economy failing to grow. What this means is less demand caused by reduced purchasing by consumers caused by layoff of workers. The thing about recessions is that they are a part of the normal business cycle.
The business cycle is a constant cycle of peaks and troughs. What differentiates each economy is how long the expansions will be and how long the recession will be.
What Happens During A Recession?
A recession means that output produced in any economy declines. The real damage in a recession is a fall in consumer spending and capital investment caused by a fall in income earned by employees and business owners and general declining asset values.
As outputs fall, businesses are forced to lay off workers to cut costs; those workers laid off will cut back on spending, and thus a vicious cycle develops.
an economic recession is a natural stage of an (economic) life cycle, managing a business in a recession can present unique challenges for business owners and employees.
Nigerian economy is complex and comprised of many industries. Its growth is measured by a number called gross domestic product (GDP). When all is going well, the overall economy expands, which means businesses are making money, growing larger and hiring people. Those people earn increasingly higher incomes (hopefully) and purchase more products, which further drives economic expansion.
At some point, like a rubber band stretched to its limit, those underlying economic factors begin to slow, reach a peak and then reverse. When they decline for more than 6 months consecutively, the economy is in a recession.
Here are five ways you can recession-proof your company.
- Grow your customer base
It’s hard to overemphasize the importance of increasing the number of customers you have. According to a BDC study, nearly one in six well-established businesses had encountered financial difficulty because of losing a single client.
“Very often, businesses are not prepared to deal with the unexpected loss of their biggest client or contract,” says Corner, who authored the study.
- Focus on your finances
Solid financial management is vital for ensuring your company is ready to weather an economic downturn. Entrepreneurs need to have early warning systems to let them know when trouble is brewing, says BDC Business Consultant Alka Sood.
“The numbers tell you the truth about your business and you need to embrace them,” says Sood, who works with business owners to improve their financial management skills.
She recommends that entrepreneurs set up a cash flow planner. To do so, use a spreadsheet to record projected revenues and expenses for the next 13 weeks and then update it each week. This allows you to get a handle on when payments from customers are expected versus when suppliers must be paid. You can then plan for periods of tight cash flow, coming projects and financing needs.
Sood also recommends you set up a financial dashboard, showing four or five key performance indicators on the financial health of your business.
- Offer new products and services
It’s easy for business owners to get comfortable with the products or services that have been successful for them in the past. However, broadening your line-up may be the key to surviving during the next recession.
In fact, you may not even have to come up with something completely new. Instead, you might be able to repurpose your products for another market, Corner says. For example, manufactured products used in the oil and gas sector could be effective in other areas with just a few changes.
“Our research showed that having a range of product and service lines can be an important form of diversification,” Corner says.
- Expand internationally
International expansion is another great way to diversify your business. If your sales dip in Canada, you may be able to make up the shortfall in markets with stronger growth.
“Exporting opens up a lot of opportunities,” Corner says. “Canada has cultural and economic ties with the U.S. and Western Europe, and our small and mid-sized businesses can often be very successful there. Those markets, in turn, can be a launching pad to higher growth emerging markets.”
But international expansion requires careful planning and market research. BDC, Export Development Canada and the Trade Commissioner Service are among the organizations you can turn to for advice and services.
- Stress-test your business
As the last recession proved, some circumstances simply can’t be foreseen.
That’s why it’s important to run through various scenarios now, including how you’d handle a sharp drop in sales. While you’re at it, look at different crisis and disaster scenarios and put contingency plans in place to deal with them.
“Look at things like: What happens if our input prices rise because of the weaker dollar,” Corner says. “What if key people in your business were all of a sudden unable to come to work because of illness or a natural disaster? Unexpected developments can derail businesses. ”
- Innovation counts—Successful businesses offer new products and services often and quickly adopt new technology.
- Get help—Networking, hiring consultants and setting up an advisory board are ways successful businesses get external advice.
- Map it out—Developing a strategic plan with specific targets will help to keep your business on track even as economic conditions change.
- Master financial management—Keeping tabs on your finances allows you to plan better, see trouble brewing and react quickly.