Recent economic reports showing a recession may be in the corner have brought a lot of consternation to the US business community. For the majority of small businesses, the fears are raised by dwindling financial reserves and reduced sales. In the wake of these reports, the US economy has been enjoying steady economic growth and outlook in the last decade. Forbes magazine points to the drop in unemployment rates from 10% in 2009 to 5.9% in 2014.
The GDP is posting positive growth as evidenced by the 3.5% expansion five years ago. The US stock market on its part has hit an all-time high while the interest rates have remained low. To get a better forecast of where the economy is going, it is critical to recognize that the US economy is impacted by events happening elsewhere around the world. Business leaders often look at the global consumer demand to gauge the country’s competitiveness and growth prospects.
Bracing for a recession
A report published by the Economic Policy Institute (EPI) in April 2019 shows the US economy could slip into recession in the coming 18 months. If that happens, the situation may be compounded by the fact that government bureaucrats are often slow to authorize the all-important public spending, especially when faced with a less desirable debt to GDP ratios. The claim is supported by the relentless fiscal austerity that marked the 2010’s economic recovery.
An assessment by EPI regarding the projected recession can be summarized as follows:
- High risk for contractionary monetary policy
- Low risk for a recession triggered by fiscal contraction
- No imminent threat to asset market bubble
How entrepreneurs prepare adequately for a recession
Recession is cyclical. As such entrepreneurs must prepare adequately for any turn of events. Policymakers, on the other hand, must find ways to prevent partisan politics from getting in the way of well-thought fiscal policy decisions. According to the Harvard Business Review, successful businesses often overcome recession by implementing the following 6 measures:
1. Build resilience
For those who have been in business for a long time, uncertainty typifies the face of the global economy. For this reason alone, entrepreneurs and business leaders need to know how to absorb economic shocks. The best way to go about it is by creating a financial buffer to make it possible for businesses to respond to unexpected threats and opportunities. A number of businesses are also undertaking stress tests to build resilience against the known risks.
2. De-average your next move
If a global recession were to strike, it would affect companies differently depending on their geographical location. History also shows economic downturns usually target specific sectors of the economy. One of the areas that have often borne the brunt of past recessions is the discretionary consumer products sector. Savvy entrepreneurs understand the importance of creating business strategies that closely analyzes various business environments to minimize exposure. This insight can help a business allocate funds efficiently.
3. Collaborate to overcome common economic problems
Any business that wants to grow must contend with risks from various quarters, i.e. economic, environmental, social and technological pressures. For instance, a protracted recession can bring undesirable consequences such as limited government intervention and social tensions. A collective approach to issues is necessary for today’s competitive business environment. The collaborative approach should bring together all stakeholders willing to help the business emerge strong.
4. Focus on growth
Perhaps the biggest shortcoming from the economic downturn is limited growth opportunities. Business owners shouldn’t let a passing shortcoming interfere with long-term growth prospects because placing too much focus on survival could be detrimental to the future of the business. The way forward is to prioritize investments in research and development and innovation.
5. Think about technological competitiveness
Technological change is revolutionizing the way business is done and in the process narrowing any competitive advantage businesses may have. Businesses can take advantage of this growing trend to invest in digital disruption and gain a much needed competitive advantage.
6. Outsource non-strategic services
Companies that already outsource services can continue on the same path during the economic downturn. The strategy can help a business convert expensive fixed costs to a more sustainable variable cost. Some of the services that can be outsourced include accounting services, logistics, manufacturing, and human resource support. In the case of HR support, roping in the support of Professional Employee Organization (PEO) to perform services such as payroll processing can help a business enjoy attractive discounts and long-term cost benefits.
Business debt management
An economic downturn can be driven by both internal and external factors. One of the internal factors to guard against is crippling debt. Uncontrolled debt can easily lead to cash flow issues and even business closure. For businesses that are committed to long-term growth, debt shouldn’t be an impediment. Tuck Associates is not your average debt company. The firm is focused on helping the client’s clear debt and keep their businesses running irrespective of the debt burden.
Some of the key services offered include debt consultation and consolidated loans. During the consultation, business owners are taken through various solutions, including debt prioritization and working with a payment plan. Tuck Associates has an experienced team of chartered accountants, risk managers, credit managers and financial analysts experienced in debt purchasing and collections. For immediate assistance, call the toll free number 1 800 798 5294.
