Times are good, according to most accounts: The stock market is up, unemployment is down, and interest rates remain constrained to the low single digits. Businesses battered by the 2008 downturn and the long, slow recovery that followed have largely regained their footing and are now expanding at the fastest pace in more than a decade.
Everything is going great – until it doesn’t. From a business owner’s point of view, the time for healthy pessimism is the moment when everyone else has put on their best rose-colored glasses. If there’s one thing American history shows, it’s that boom/bust cycles are cyclic by nature. There’s going to be another significant downturn eventually; when it comes, it will take most companies by surprise as it always does. Competitive and survival advantages will go to those who saw it coming, and planned beforehand.
Just about any business can take some important steps to plan for recession in advance – and any business that does is bound to benefit as a result:
- Secure credit. Even if you don’t need capital right now, that’s no guarantee you won’t be needing it after a recession hits – and when that happens, resources are likely to be a lot less available.
- Pay off debt. At the same time, take advantage of favorable circumstances to retire old debt when possible, particularly if it is sizeable enough to cause significant problems in a more adverse climate. The lower your debt burden, the more flexibility you’ll have in the event that cash flow stalls. In particular, pay off or refinance high interest debts wherever possible.
- Right-size growth. Overextension in boom times is often a death knell during market washouts. Ensure that growth is sustainable and that your company is not creating cost centers it can’t control when needed.
- Diversify your market. Judiciously broadening your market when circumstances are favorable – expanding beyond a single market segment, primary customer, or geographic region – provides protection in the case of sharp downward spikes affecting any key clients.
- Contain benefits expenses. The cost of health care and other benefits seldom trends downward. While rising costs may be easily absorbed during profitable periods, they can be an onerous burden when times are tight. By negotiating better deals or researching more affordable options during boom periods, you stand to conserve cash later when you need it most.
- Right-size your workforce. A peak-performing organization is one that has the right people in the right positions at the right time to do what needs to be done, without a significant surplus. Optimally, consider cosourcing or outsourcing at least part of your workforce to give yourself the greatest possible flexibility when circumstances change.
- Solidify key customer relationships. It’s a lot easier to forge long-term working relationships and contracts when circumstances are favorable – and such agreements may provide vital sustenance when times get tough.
From the vantage point of early 2018, the economic future looks more solid than it has in a long time. With any luck, the measures recommended here won’t have an opportunity to prove their worth for a long time yet, but an unstable geopolitical climate argues against leaving anything to chance. It’s never a bad time to plan a good defense for your company; while another downturn may not be on the immediate horizon, the one sure thing is that sooner or later, it will arrive – and the measures you take now may make all the difference.