How prepared is your business to face an economic downturn?
While it is not always possible to predict when economic activity might decline due to inflationary pressures or changes in interest rates, anticipating and planning for these situations could help businesses protect themselves. Combating uncertainties with contingency plans for maintaining liquidity, handling debts, and managing risk could help all improve outcomes during periods of slower economic growth.
The following six considerations could help your company better position itself to navigate economic challenges.
1. Define your liquidity needs
Evaluate the cash needs for your business to sufficiently cover operations, then take steps to ensure you can maintain that liquidity throughout the recessionary period.
- What sources of liquidity do you have if needed?
- What are your debt obligations?
- What sources of unencumbered assets do you have if needed?
- Could an equipment sale leaseback potentially be a source of liquidity?
2. Focus on employee engagementMaintaining morale and focusing on employee engagement will be even more critical during this period. An economic downturn could lead to planned or unplanned turnover, creating stress and distractions for employees.
- How will you communicate about your financial standing and operations?
- What support will you offer employees during this time?
- What strategic actions are you able to take to retain employees?
3. Double down on customer retention
Rather than emphasizing new growth, consider strengthening your existing customer relationships. Long-standing customers who might not have shopped around before might start seeking other bids. While customers might require less from your organization during this time, focusing on maintaining the relationship now could help retain them when market conditions change in the future.
- If your existing customer were a potential new customer, would you offer them the same terms?
- When was the last time you met with your top customers?
- How would an economic slowdown impact your customers? How can you help?
4. Balance risk and reward
Managing risk is even more critical during economic downturns. Taking an overly conservative approach to risk, however, could negatively impact your company’s growth when economic activity increases and rate pressures ease. Find ways to strike a balance between mitigating risk for your business without significantly changing your growth strategy or position.
- What steps could you take to reduce costs?
- What percentage of your cost structure is fixed versus variable?
- How discretionary are your distributions?
5. Drive internal efficiencies
If your company is well capitalized, slower economic growth could create opportunities for you. Take this time to examine current operations processes and consider investing in areas to drive efficiencies.
- Can automation improve your business and lower costs?
- Can you accelerate your receivable collections?
- Can you stretch your payables?
6. Consider merger and acquisition opportunities
Competition remains stiff as organizations are still turning to inorganic growth. According to Capstone Partners' Trends in Global M&A 2022-2023 report, advisors are largely optimistic about market growth in the coming year despite rising inflation and economic uncertainty.
Look into acquiring competitors who might seek to exit or key leaders who might be looking to join a more stable organization.
- How impacted was your business in prior downturns?
- What competitive advantage can you demonstrate during this period?
Prepare your business to be resilient against economic headwinds. At Huntington, our goal is to look out for your organization throughout this challenging period. Contact a relationship manager to learn more.