Who can blame you for thinking that there are very few positives for businesses in recent times?

Wherever you look, threats exist. You can’t deny the significant inflationary pressures on living costs, resulting in interest and wage rate increases and added pressure on margins. Volatile trading conditions, trade tensions, global conflict, pandemics, and natural disasters, all add to increased headwinds.

Long story short, running a business is not for the faint of heart. The good news is, everything you need to thrive in uncertain times is within reach, starting with a solid business continuity plan.

Building a solid business continuity plan

The 2 big questions for business leaders are;

  • How can we best prepare for a potential recession?
  • How do we build resilience so that the company can come out the other side as unscathed as possible?

When thinking about resilience, there is a tendency to focus on company finances, especially cost and debt reduction. While financial health is critical, solving this alone is not sufficient.

Here are three steps you can take:

1. Develop an adaptable strategy

The aim is to expect the unexpected and respond faster than others as things change around you. To do this, you must continually scan your environment and ensure this information is distilled and accessible within your team. Invest in this area by bringing experts and purchasing market research if needed.

Consider establishing a Business Continuity Plan (BCP), which looks at a broad spectrum of ‘events’ that could occur and impact your business. Ask what you should do now to prepare for each scenario (prioritising the high probability/high impact events), what lead indicators would signal that the event is about to occur, and map out what actions you will take if the event materialises.

This planning exercise can focus on how to ‘weather the storm’ and position the company well for a post-recession recovery. More often than not, companies find that they identify new opportunities while conducting this exercise. For example, new revenue stream ideas may come from diversification or risk mitigation workshops.

2. Review your resourcing

If you want to capitalise on new opportunities, having the right resources in place becomes more important than ever. This protects your business and positions your company for growth.

It’s crucial to create some headroom within your finances. This includes looking at potential new lines of credit and diversification of financing. In other words, review your funding, including whether you have the right type of funding. This includes a review of your banking facilities.

Your business may have an overdraft facility, which is a simple and easy way to establish a buffer. However, depending on your business, this can be an inefficient way to fund your working capital, and there may be better options available.

For example, if you have significant sales volumes from a handful of established customers, you should consider supply chain financing, also known as trade financing or bank receivables programmes. These facilities often have some element of spread risk (as the bank considers the balance sheets of your customers and their ability to pay your invoices), meaning the interest rates offered are generally better than overdrafts. You get the cash on your invoicing date, and your customers pay the bank instead of you a month later.

These are a bit more work to establish, but they scale well as businesses grow and bring cash flow forward. The interest rate differential, even at lower levels of debt versus overdrafts can make a tangible difference.

Ultimately, the most important thing is to keep talking to your bank and ensure those discussions are open, honest, and transparent.

It is prudent to consider the liquidity of your assets and reserves. We’ve found that the companies that strengthened their balance sheet in response to the uncertainty that existed when COVID-19 first appeared, are generally well-positioned now.

Now is also the time to consider divestment of unproductive assets, to free up financial resources and build the desired headroom, and/or reduce debt.

Review your enterprise’s current cost structures and efficiency levels, and don’t forget to include technological efficiency and systems robustness. Can you automate any processes to increase efficiency?

Often overlooked is the need to prioritise human capital during downturns. A good culture and a competent, trained team committed to the organisation’s goals are critical to the success of the business. You need to surround yourself with people that you can trust.

Invest in building resilience in yourself and your team to personally cope with the ups and downs and manage stressful situations and challenges as they arise. Also, consider a more strategic approach to your contingent or overflow workforce. For example, can you establish a network of task-based or ‘gig’ workers familiar with your business and service expectations, who are just a phone call away if needed?

3. Focus on customer service

Broadening your customer base is a popular strategy to cope with an economic slowdown. This could mean expanding into markets not impacted to the same extent as your current focus areas or exploring new, more recession-proof revenue streams.

This is a great approach, but don’t neglect your current profitable segments and existing customers while you’re doing it, particularly those high-margin categories. These generally generate your immediate cashflows and pay your bills throughout the short to medium term.

Reputation is far more important than brand, and a good reputation is always driven by existing customer satisfaction.

If diversifying is part of your business continuity plan, consider issuing periodic surveys to your existing customers and monitor these results and trends to ensure ongoing client satisfaction.

What’s Next?

Leading in a recession takes courage and commitment. No two businesses are the same, and each needs a tailored strategy and plan to survive and thrive during an economic slowdown. However, as highlighted above, the following foundations of the planning process are a good start.

  1. Anticipate potential events, establish lead indicators, and take steps to mitigate impacts.
  2. Ensure you have the right resources to contain the negative effects of a downturn.
  3. Maintain service excellence while positioning your organisation to capitalise on opportunities.

Learn how Nexia New Zealand can help set you and your organisation up for success. Contact your local Nexia Advisor to get started.

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