The winds of change are blowing, and the signs are clear – a recession is on the horizon. From slowing consumer spending to tightening liquidity, businesses are feeling the effects. The question isn’t whether a recession is coming, but rather, are you ready for it?

As highlighted in the Conference Board’s June 2022 C-Suite Outlook, more than 60% of CEOs expect a recession in their primary region by the end of 2023. The good news is that we have been here before, and there are lessons to be learned from the past.

During our recent recession readiness webinar, we had the privilege of sitting down with a variety of business leaders who shared their insights on how organizations can begin to cultivate resiliency. In addition to their many insights, they extolled the value of leaning into the “3 Cs” framework – cash, communication, and competitive advantage.

Unlock the Power of Cash Management

Businesses face a critical challenge when the market is facing a downturn: ensuring they have enough cash to stay afloat. Cash is king in times like these, making it essential to thoroughly understand your company’s cash position and future cash needs. By implementing effective cash management processes, you can maximize available cash and preserve overall liquidity – two keys to surviving and thriving during tough times.

Cultivate a cash culture

To prioritize cash in your organization, consider establishing a cash-centric culture. Monthly cash reconciliations help ensure the C-suite has timely liquidity and available cash estimates, encouraging everyone to focus on cash as a critical business metric.

Evaluate your cash availability

Forecasting your cash needs is the first step in understanding your company’s cash position. To get a complete picture, implement short- and long-term direct cashflow forecasts that can be updated frequently to capture market fluctuations. This approach allows you to interpret data promptly and act when necessary.

Optimize your cash flow

Benchmark your cash conversion cycle against peers and industry averages to identify any tied-up cash. By streamlining operating capital, optimizing cash collection and payments, and managing inventory more effectively, you can minimize the need for additional liquidity and free trapped cash. With these proactive measures, you can unlock the power of cash management and keep your business running smoothly.

Leverage technology

Investing in technology can help companies automate processes, reduce costs, and improve efficiency. This could include implementing software to improve data management, automating manual processes, or investing in new equipment to improve productivity.

Review supply chain

During a recession, disruptions in the supply chain can have a significant impact on a company’s operations. Companies should review their supply chain to identify potential risks and develop contingency plans to mitigate disruptions. 

Operational efficiency: cost-cutting measures

As Tom Lunsford, Chief Financial Officer at MPP, explains, companies must optimize operational efficiency during a recession to preserve cash and maintain profitability. Implementing cost-cutting measures is one way to achieve this goal. This could include renegotiating vendor contracts, reducing headcount, consolidating facilities, or eliminating non-essential expenses. 

Communication and Renegotiation  

According to Sue Peterson, executive vice president – inclusion, diversity and people at Noodles and Co., the importance of clear communication cannot be underestimated. Effective communication with customers, employees, equity holders, vendors, and lenders is critical to maintaining relationships and preserving liquidity. 

Communicate with employees and equity holders

During an economic downturn, it is important for business leaders to communicate their mission-critical goals to employees and equity owners. They should also assess compensation plans and structures to determine if there are opportunities to defer cash outflows. In addition, hiring plans should be reassessed to avoid non-critical additions. 

Renegotiate with vendors

Renegotiating with vendors can be an effective way to preserve liquidity without damaging relationships. The Harvard Business Review recommends renegotiating terms sooner rather than later, as negotiations during non-distressed times often lead to more favorable outcomes. This can help reduce working capital and increase credit availability.

Renegotiate with lenders

Companies should also notify lenders of anticipated performance deterioration early on, as this is more likely to lead to a mutually beneficial solution. It is also a good idea to do due diligence and create a list of backup lenders to ensure availability and credit terms are optimized. 

Competitive Advantage: Identifying Opportunities

For stressed industries, recession can often spell consolidation and strategic acquisitions or sales opportunities. Understanding the competitive landscape is vital to position your business and capitalize on opportunities successfully. 

Conduct a competitive analysis

Companies should conduct a competitive analysis, assessing top potential synergistic partners and significant players. At the very least, consider key competitors’ SWOT analysis (strengths, weaknesses, opportunities and threats). 

Potential transaction analysis

As Kevin Hunt, president, and chief operating officer at Shiel Sexton Company Inc., explains, understanding the competitive landscape is essential to capitalize on acquisition opportunities. Companies should conduct a competitive analysis, assessing potential synergistic partners and significant players. Thorough valuation and analysis should be conducted to evaluate the potential of an acquisition or sale. The company’s most profitable segments should be optimized to make the most of any offer, and the overall impact on the industry should also be considered. 

Is Your Organization Recession Ready?

Are you ready to face the next economic downturn head-on?

Investing in your organization’s preparedness today will allow you to take advantage of opportunities tomorrow.

Your future self – and your bottom line – will thank you.