According to Forbes, “recessions are considered an unavoidable part of the business cycle—or the regular cadence of expansion and contraction that occurs in a nation’s economy.”
The Federal Reserve is fighting inflation and bumping up interest rates. We are dealing with the residual economic impact of the pandemic. On top of this, think about the devastation caused by the Russian war on Ukrainian people… we see this from afar and experience its global strain on imports and exports.
Considering all of this, it’s easy to see why some economists see a recession in our near future.
The Fed’s Chairman, Jerome Powell announced at his last press conference that the Fed in its anti-inflation fight will strive to achieve what he called a “soft landing.” Economist Milton Ezrati suggests in a Forbes article that “soft landing” really means the Fed is trying not to cause a recession with their actions. However, Chairman Powell referred to a soft landing as not likely and Ezrati predicted in the article that a recession could last until past Q1 of 2023.
Fear not – recessions are an inevitable part of how the economy works.
No industry is recession-proof. Even if your business is successful during a time of national recession, industries fluctuate. The nation’s economy could be thriving and your business could run into unforeseen circumstances that put you out of business. For example, Solyndra, a solar power company that had previously raised $1 billion in venture capital funds went out of business in 2011 when the economy was doing well recovering from the Great Recession of 2008-9.
What is most important is the realities and challenges in front of your company and its people, regardless of the current state of the economy.
You know how to run your business. If you are a CEO in a position to invest in your business – whether it be new technology, equipment, or even working capital to fund new processes – reach out to EFFI for a consultation today.
What Have Successful CEOs Done in Past Recessions?
Look to the previous recessions and see the past success stories of CEOs who lead their companies through down times by being consistent. Here’s what we’ve learned from trends among successful CEOs during down economies:
#1 They Make Contingency Plans During Good Times
Business fluctuations are an ongoing reality and recession contingency plans are always a good idea. Some CEOs shy away from contingency plans. They worry about how employees will interpret the preparation, in fear that it may cause worries about how the business is performing. We believe preparation for financial hardship is always going to be a good exercise, even if your business never sees hard times.
#2 They Don’t Push the Pain or Take Reactionary Risks
Most successful CEOs don’t let turbulent economies derail their goals. They are consistent despite the scary global economic outlook. Companies last through these tough times by making creative partnerships and efficiency improvements.
They open lines of communication with employees, partners, and vendors that are feeling the pain too, and work with them to make changes together instead of squeezing them. All parties will remember these efforts when you come out on the other side.
This is not to say that all risks are bad. Calculated risks are sometimes smart, like using a working capital loan to invest in your employees during a down economy. A move like this can boost morale and loyalty from employees after the down economy has fluctuated back to normal.
#3 They Invest in Their Teams
A CEO that is going to navigate his team through recession should look for every option to avoid making dramatic layoffs. Cutting the team should not be the default solution for CEOs, when looking for ways to lower expenses. The following is an excerpt from a 2001 Harvard Business Review article by Darrell Rigby:
“Although employee layoffs will reduce costs in the short term, the combination of severance expenses, loss of knowledge and trust, and subsequent hiring, training, and retention costs can quickly overwhelm expected savings. Companies such as Southwest Airlines, Harley-Davidson, and FedEx have no-layoff policies. As a result, their employees dig in during tough times rather than shop for new jobs.”
Avoid casting all of the pain of the recession on employees with layoffs, forcing them to suffer the consequences while your company marches forward. Instead stick by them for as long as possible and communicate with them like never before. Encourage an outpouring of innovation and efficiencies in the face of hard times.
Invest in their ability to perform well and produce better returns. Capital for financing through the thin times, such as working capital loans, equipment finance, or even cash out financing can pay for things like technology, operational efficiency, risk analysis, market assessment, brand building, and cyber security through to continued profitability.
In addition, nonmonetary options for improved outcomes such as emphasis on work-life balance incentives can go a long way when your business is not in a position to give monetary increases. Things like working from home and flexible scheduling incentives go a long way.
#4 They Eliminate Extra Costs
Eliminating extra costs is fundamental for every company. The pandemic taught us about previous sacred expense items such as real estate leases which in many cases have been reduced or eliminated. Expensive statements such as, “we need the big office”, or “the big law firm”, or the “big insurance company”, when a smaller office, local provider, or new options likely exist. Less costly does not always mean less effective.
Remember, cost cutting and budgeting should be part of a successful CEO’s strategy year-round and during any up or down economy.
Ready for Fluctuation
We hope that this article has strategies that you can apply to your company. If the finance headlines begin to overwhelm you just try to focus on one thing: recessions are cyclical. Recessions occur on average every six years, according to an article by The Balance.
It’s expected that they will bring trepidation and worry with them, but remember, we’ve been through these before. If you can stick with the strategies of past successful CEOs you will be set up for success.
Consider reaching out to EFFI Finance for a consultation on how a working capital loan may be the right investment for the moment.