On the brink of a possible recession: what businesses should do to prepare


While many are in a hurry to put the uncertainties of 2020 in the rearview, continued economic disruption may not be behind us just yet. Significant political change — regardless of the election results — will be added to the list of disruptors that are likely to impact financial planning next year. Many of the economic prognosticators are warning the disruption of 2020 could turn into a long-term recession.

As organizations consider how to prepare for a potential recession, it is helpful to start by considering aspects of the business that can be controlled. By focusing on what can be controlled, organizations will be well-prepared to face a wider variety of potential challenges that may be around the corner.

By now, it should go without saying that cash flow modeling should be a part of every businesses’ efforts to be prepared for the future. As we plan for a time that could well be recessionary, businesses should prepare their projections accordingly.

In 2020, few organizations had the contingency plans in place to prepare for COVID-19 and its economic impact. However, by now, most have learned from this year’s experiences and should better understand how to plan for additional economic distress. To put it simply, if an organization does not have a plan in place to respond to a continued negative economic environment next year, they are very unlikely to survive it — except, perhaps, by accident.

Many organizations pivoted in response to COVID-19 and have been able to come out of 2020 surprisingly profitable. While most didn’t plan for the pandemic, businesses that pivoted quickly were able to take advantage of the opportunity to innovate and adapt. For 2021, organizations have the chance to be more intentional and prepared by planning and having contingency plans ready.

In addition to financial planning, talent resource management continues to be critical. Most organizations rarely have enough of the best people in the right positions to most positively impact results. During times of recession, companies have the opportunity to reimagine the way the organization is staffed. Business owners should consider using external solutions for activities that aren’t in their wheelhouse and to consider whether all of the right people are in the mix or if it’s time to make a change. Similar to the cash flow projections, talent management plans and contingencies should be prepared for a potential recession.

No discussion on planning for 2021 would be complete without considering a company’s technology infrastructure. Technology transformation has been forced upon us in the last year due to COVID-19 restrictions on face-to-face interaction. Whether there is a full-blown recession or other economic circumstance in 2021, the technological transformation and resulting expectations for the way of doing business will, in many ways, be here to stay.

Most businesses had to make triage-like decisions and quickly implement a technological solution to pivot quickly in the pandemic. There is now the opportunity to have a more well thought out and intentional technological strategy. This is especially true because many of the platforms organizations have been using have now been tested, making it easier for companies to determine which solution is the right one and make a more informed decision about the associated costs. Using technology to change the way we recruit, identify the right talent and scour the world for possible vendors and customers all need to be part of an organization’s plan to prepare for a possible recession.

Organizations should also prepare for practical requirements. This includes maximizing cash on hand; having robust arrangements with lenders, including the capacity to borrow and include covenants in loan agreements without triggering drastic bank action; and making sure corporate governance is in order.

Thinking about succession planning is also crucial, especially if there is an anticipated leadership or ownership transition in the future. Finally, businesses should consider time-sensitive opportunities to take advantage of known tax law instead of waiting until significant changes to the tax structure might be in place.

As 2020 nears its end and we look forward to 2021, we know there is more disruption coming. The current economic disruption may loom as each ancillary effect causes varying levels of disruption. While the economic climate of the next 12 months remains to be seen, businesses who plan for both controlled and uncontrolled events will be well-positioned to face what is yet to come.

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