Recessions happen, and it’s important for business leaders like yourself to have contingency plans in place well before sales turn down. The key to surviving a recession is cash.

Businesses have the tendency to reduce spending when sales are down and the economy crashes. However, if you put a contingency plan in place ahead of time, it will help set the foundation for solid cash flow. 

Warning Signs

Last fall, General Motors announced it would lay off more than 14,000 workers in the U.S. and Canada and shut down five plants. Ikea cut 7,500 jobs. Verizon said 10,400 employees would leave under a voluntary separation agreement. While those changes are being made in large part to adjust to shifts in consumer demand, they could also be viewed as a forecast of bad times ahead for the economy.

According to SHRM HR, “Economists and financial experts have been warning for some time that we’re overdue for an economic “correction.” Business cycles typically run every seven or eight years, and the last recession officially ended in June 2009. The current economic expansion, which is in its 10th year, is the second-longest on record.”

According to the findings of a recent Duke University/CFO Global Business Outlook survey, almost half (48.6 percent) of 212 U.S. chief financial officers believe the nation will be in recession by the end of 2019, and 82 percent believe that a recession will begin by late 2020.

Plan Ahead

To withstand the challenges of a recession, leaders must be willing to make changes that will benefit the organization long-term. The most effective way to prepare for a recession is to strengthen the way your business operates today. 

Here are some key questions leaders must consider while making their contingency plan:

  1. Do we have the right leaders, and are they in the right positions? 
  2. Is our staff aligned to meet organizational goals? 
  3. What opportunities do we have to improve or grow the business? 
  4. How can we best structure our workgroups to achieve optimal results? 
  5. How can we reduce costs without compromising the quality of our product or service? 
  6. Can we automate or outsource any functions or processes to drive internal efficiency?

Making a blueprint for a contingency plan ahead of time has two great benefits. First, companies with plans in place act faster. Companies that don’t have a plan in place are more likely to go bankrupt than those who take action. 

When the executive team has been involved in developing the contingency plan, they will buy into the execution of the plan faster than if the plan is sprung upon them. Strategizing a contingency plan cuts the time lag significantly, which will improve the odds of success.

The second benefit of advanced planning is that you can set up a plan that aligns with your long-term strategy and values. This is a perfect time to think about your business core values and ensure that the recession plan reflects them.

Triggering Your Plan

Wondering when a contingency plan should be executed? Don’t wait for the official news declaring a recession. Pay attention to the main company indicators – sales and orders. 

Some businesses may have good leading indicators, such as inquiries or requests for proposals. Some companies may watch other companies or industries that usually trigger spending. For example, home goods product sales usually decline after housing stats have turned down. 

Developing indicators will help you better identify a downturn in advance. Having an economic dashboard specific to the business or industry is far better than reading random news items.

The recession contingency plan does not need to be complicated, but developing it ahead of time will set a company up for surviving the next economic downturn. 

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