When you come to think about it, it has been 10 years since the last recession. Many things have happened since then.
When we look at the world today, the global economy is doing fairly well, unemployment rates are low, and buyers still continue to shop yet despite all these there is a certain unease in the market. A steady, tense, cautious feeling that economists and businessmen have in the pit of their stomachs.
Month after month, economists theorize the possibility of a recession. Why wouldn´t they? There is no shortage of potential triggers like the escalating trade war or Brexit uncertainty.
There is, however, one reliable factor that indicates that investors are smelling trouble ahead – an inverted yield curve.
Recessions in the past have historically been preceded by an inverted yield curve. Recently, the 10-year treasuries were below the 2-year yields for the first time in 12 years. Because of this, NY Fed puts the recession probability in July 2020 at 31.5%.
So, for businesses, do you think you´ll weather through the next recession? How do you prepare for what seems to be an impending recession?
Below are 5 tips.
- Make sure you have sufficient Cash Reserve
Warren Buffet, the CEO of Berkshire Hathaway is a man known for outperforming the market. He is also known for being against sitting on a pile of cash. It is indeed alarming that it has been reported recently that Berkshire´s cash on hand is a mouth-watering $122 billion. Some argue he might be smelling trouble ahead while the others think the conglomerate has just grown too big for its own good.
Regardless what you choose to believe in, having sufficient cash reserve is key for a business to survive recession.
- Keep an eye out on your financial statements
The importance of having accurate and reliable financial statements cannot be overemphasized. Making sure you have a single version of the truth in the company and you have good visibility of company performance is good management practice in good times and especially so in bad times.
If you are constantly having trouble with the accuracy and speed with which you generate P&L statements, cash flow statements, balance sheet, invoice aging report, and payables aging report then please invest in a good budgeting and reporting software like Performance Canvas Financials.
Investing in a budgeting and reporting software like that ensures you have access to critical insights so you can identify emerging trends, risks, and opportunities. It will also afford your business the agility it needs to survive a recession.
- Be smart about new costs
Many companies do not care so much about new expenses during good times but these expenses can easily pile up that during a recession, it might be too overwhelming for a business.
Therefore, make sure you buy only those that can really add value to the business. If it is not something you need to weather through bad times, wait with it until you feel fairly confident.
One thing to remember is that reporting solutions or budgeting solutions that offer transparency and agility to a business during good and bad times are never bad investments.
- Widen your marketing channels
It is important to diversify your marketing channels so that you continue to get a steady flow of clients. If you concentrate on a single channel, if that channel happens to go out of business, your business will be in deep waters. Do this when times are still good, experiment if you still have the funds so that when bad times hit, you have streamlined and identified your most effective channels.
- Manage AR/AP effectively
When a recession hits, clients usually take a longer time before they start paying. Others might not even be able to pay because of bankruptcy. This will severely affect your business so make sure you effectively manage invoices that need to be paid by your clients and invoices that you likewise need to pay.
Performance Canvas Financials is a complete and cloud-based budgeting and reporting solution that offers financials as base module which you can extend to add advanced financials which includes AR/AP automation, enhanced consolidation, profitability analysis, and more.
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