The likelihood that another recession may be on the horizon is hardly a secret. Not only is the world still coping with the consequences of the ongoing COVID pandemic, but high-interest rates and rising inflation have many worried about an impending economic downturn.
In fact, a recent model produced by Ned Davis Research indicated that there is a 98.1% chance of a global recession. This concern is reflected in a survey conducted by The Conference Board, in which CEO’s ranked potential global recession as their primary concern. This is also supported by the global growth forecast made by JPMorgan Chase and the World Bank, in which they ranked the potential recession as the top external worry for 2023.
Business leaders who experienced the previous recession between 2007 and 2009 understand the importance of being aware of common recession trends to survive the next one. Knowing these three past trends can help them survive and even thrive during an economic downturn in 2023 and beyond.
Trend 1: The Universal Reason For Business Failure
During a recession, businesses of all types can be affected. However, every organization that fails does so for the same primary reason: they run out of money.
To prepare for a potential recession, wise organizations are taking steps to protect their bottom line by fortifying their cash forecasts and managing variables. The goal is to make decisions that affect their capital well in advance before their cash runs out. Companies may also benefit from investing in cloud-based planning software to easily monitor their business operations.
To further reduce risk, businesses can increase their runway and add conservatism to their forecasts, diversify their assets, rebalance their investments, and adopt a longer investment timeline to ensure they have liquidity during a stock market downturn.
Trend 2: Understand the Silver Lining of a Recession
A recession is generally seen as a negative event that impacts society at all levels. However, not everything that comes out of a recession is bad. On the contrary, the challenges of a recession can inspire leaders to innovate and create. As a potential recession approaches, companies should assess their strengths and weaknesses, seeking out opportunities to become more efficient, improve operations, and explore new markets. The goal is to be proactive rather than reactive like other less thoughtful organizations. Additionally, businesses should make sure they have access to reliable scenario-planning software. This allows them to test the impact of different scenarios and evaluate the potential consequences of various business strategies.
Trend 3: Revitalize Employee Engagement
The Great Resignation, a trend seen during the COVID era, saw employees leaving companies in large numbers to seek higher pay elsewhere. Additionally, the Quiet Quitting trend, where employees remain at their jobs but perform minimal work, has resulted in businesses feeling undervalued. As the economy worsens, it is possible that employee loyalty may increase as people become less willing to job search during uncertain times and may be more inclined to put in extra effort at their current job.
Businesses can benefit from this trend by showing appreciation for their employees and providing them with fair compensation and benefits. Creating a positive company culture that values its workers can increase the likelihood of employee retention, even during economic downturns. This can be achieved by expressing gratitude for their efforts and rewarding them accordingly.
With the possibility of an economic recession looming, businesses must navigate a new level of uncertainty. Factors such as cash flow, capital investments, debt covenants, and labor are once again becoming clouded with uncertainty. In this scenario, financial forecasting is crucial for effective financial planning, both before and after an economic downturn. Fortunately, various FP&A tools are available to assist organizations in achieving their goals during these challenging times.