An economist has outlined the most important things businesses can do to survive a recession, based on top tips shared by people who have run businesses through downturns as far back as the 1980s.
Due to the devastating impacts the coronavirus pandemic is having on the global and domestic economies it is widely accepted that a recession is on the very near horizon. An economy officially goes into recession when gross domestic product (GDP) shrinks for two consecutive quarters.
Just last week the Treasury forecast annual average GDP growth will fall by as little as 0.5 per cent or as much as 23.5 per cent in the year to June 30, 2021.
Tony Alexander, formerly BNZ’s chief economist, invited readers of his weekly newsletter Tony’s View with experience of past recessions to send their thoughts on the most important things they did to handle past downturns.
The 89 responses contained insights into the things which worked, the things which were a waste of time and the mindset business owners must have to make it through.
He summarised those responses into 10 key points:
1. Forget profit and balance sheets and devote all attention to cash flow. Forecast it out at least six months, and assess and update that forecast weekly.
2. Go as early as possible to your bank with your forecasts, your plans, how you will assess them over time, and what you want from your bank. The bankers will be busy so the easier you can make their job of selling your request up the line the better for you.
3. Trim every expense not core to your central product offering, ranging from sponsorships to magazines, company cars, etc. Explain your situation to your landlord and suppliers and ask for discounts. 15 per cent supplier discounts were common.
4. Make cost cuts including staff reductions as early as possible, trying to avoid having to make further rounds of cuts as the months advance. Act early, act big, act once.
5. Communicate fully and honestly with your staff, suppliers, bank, and clients. Get as many people as possible on-board with your plans.
6. Look after your mental and physical health, and seek advice from a wide range of sources – definitely not just your banker and accountant, and almost certainly not from your mates around the barbecue.
7. Trim back advertising and concentrate on marketing to targeted audiences.
8. Look for opportunities in the form of cheapened competitors, but stay focussed on your core areas of strength.
9. Stop following negative media, speculation on how bad things might get, and measurements of the depth of downturn. Pessimism leads to inaction.
10. Remember that this too will pass as all previous recessions have, and note that many people regret that once they had cash flows under control, they stayed too cautious for too long and missed some good opportunities.
Alexander said he was surprised with the amount of feedback he received as well as the willingness of recession “veterans” to share what they had learnt over the years.
“For them recession has become something that happens every 10 years,” Alexander said.
He hoped the tips would help less experienced SME owners, who had never experienced a recession, better understand how to navigate one.
“It was the recession veterans passing information to the recession virgins essentially.”
PWC partner Anand Reddy said this recession would be different to anything we had experienced in the past because it had been born not out of financial factors but for health reasons.
“It’s not a financial recession, it’s a health crisis.”
As a result businesses needed to think about how to best position their business in response to Government decisions and stimulus which would largely be directed towards health outcomes, he said.
“Businesses need to be quite cognitive of how this might play out.”
For example the Government wouldn’t be trying to stimulate international tourism or bricks and mortar retail because those would not align with health objectives, he said.
Businesses needed to position themselves for a future economy that featured less travel and face to face contact. As a result businesses that utilised technology and online sales would perform better than more traditional businesses, he said.
“Traditional SMEs which haven’t invested in technology will feel more exposed in a recession environment.”
In the immediate future business owners should be thinking about tactical decisions that could be made during the crisis response, he said. This should be followed by more strategic thinking for the medium to long term response, he said.
Tactical decisions included practical decision like whether or not to get the wage subsidy, and forecasting best and worst case scenarios to work out a cashflow range, he said.
Businesses should also look at what revenue and cost levers in the business were and have a road map of how to manage cashflow, he said.
Tracking metrics such as sales, customer feedback, and staff sentiment on a regular basis were also important, he said.
“Get into a robust habit of checking in with these daily or weekly.”
Getting a deep understanding of what a businesses’ customers were experiencing would give a good indication of where the business was heading, he said.
Longer term strategic thinking included looking at opportunities in the new environment, focusing on what was working and stopping what wasn’t and focusing on keeping the business viable over the coming years, he said.
Deloitte partner David Webb said the key theme to help businesses through the crisis was communication with customers, suppliers, banks, and external advisors. Business owners that were “battening down the hatches” and not communicating were the ones that were already struggling, he said.
“They need to be pulling together a business plan and a forecast.” Such planning was essential when seeking Government grants or financial assistance from the bank, he said.
Business owners should speak to their bank managers to see what assistance was available to them, he said.
A lot of business owners were worried about whether they can keep with workforce after the 12 week wage subsidy ends. That’s why it was important to start a conversation as a management team and with employees now about what leave staff could take, he said.
It was also a good time to talk to staff “on the shop floor” about where costs could be saved. While things were quiet during strict alert levels it was a good time to get on top of management, operational and financial systems which were often overlooked in the day to day running of business, he said.
This article was originally published on 21 April 2020 at https://www.stuff.co.nz/business/industries/121129119/coronavirus-business-leaders-share-tips-for-surviving-covid19-crisis-based-on-lessons-from-past-recessions