What To Consider When Preparing Your Business For An Imminent Recession
It’s an unprecedented time in our economy. According to the National Bureau of Economic Research, as of July 2019, the U.S. has officially surpassed the prior historical record for the longest economic expansion following an economic crisis. While we’re all happy to ride this wave of economic growth, many economists and business leaders are actively warning us not get too comfortable in our current business operations.
The topic of “recession” is being discussed more frequently throughout the financial industry. And even though no one knows when it will hit, history shows that it’s only a matter of time before it does.
Learning From The Past
Rea & Associates, like countless other businesses, was hit hard by the 2008 economic recession. We lost a significant amount of revenue and, in order to survive, we had to let go of a considerable amount of workers, which resulted in a talent gap within certain areas of the firm.
For a while now, our firm’s leaders have conducted substantial research about the need to prepare for an economic downturn. Subsequently, we have made a conscious effort to learn from our past and develop a plan to meet a future recession head-on. Planning ahead allows us to think rationally without the added pressure of being in an actual recession.
Our firm’s leaders have conducted substantial research about the need to prepare for an economic downturn. Subsequently, we have made a conscious effort to learn from our past and develop a plan to meet a future recession head-on. Planning ahead allows us to think rationally without the added pressure of being in an actual recession.
Developing A Calculated Response
Our first step was to analyze the effects the last recession had on our firm. Then, we proceeded to dig through data to gain a solid understanding of the issues we faced in 2008. Armed with this knowledge, we began to develop a tangible plan of action that includes more than 40 business items leadership can evaluate to help offset or minimize the pain associated with recession. These items range from how we bill our clients to the types of employee benefits we offer. From there, we identified which items should take priority during the evaluation phase and which ones can wait. Ultimately, the work we’re doing now directly supports our objective of being able to ensure that we are always in a position to take care of our clients and employees.
Getting Into The Weeds
We’re also working closely with our firm’s specialty practice leaders to understand what leading indicators in their respective industries might signal an imminent recession. These indicators might include construction starts, machine orders, and demand for specific products and services. Recession impacts different industries in different ways, so it’s important to keep an eye on what’s happening at a granular level.
We’ve also made a point to analyze our own revenue streams. This was an exercise to determine where we may need to grow our business should signs of a recession start to appear. For example, we know that certain portions of our business are more recession-proof than others. An analysis of the margins and opportunities that exist in these lines of business will ultimately fuel the decision-making process of the exercise.
Helping Others
It’s easy to fall into complacency when times are good. Just remember that, without a plan in place now, you’re in for an uphill battle when the next recession actually makes an appearance. Don’t wait until it’s too late to evaluate – or in some cases, reevaluate – your business’s operations. If you’re not sure where to start, we’d be happy to further explain what we’ve been doing to recession-proof ourselves and perhaps spark some new ideas for you.
By Jeremy Senften, CPA, CGMA (New Philadelphia office)