Time is of the essence

2023 is an ever-changing economic landscape which includes the possibility of a recession or slowing of the economy - something we are hearing a lot about from economists. This is not all doom and gloom if businesses take proactive measures to prepare for a potential downturn, by understanding the return on investment (ROI) for all activities within the organisation.

First, it's important to understand what a recession is and how it can affect a business. A recession is a period of economic decline, characterised by a decrease in GDP, rising unemployment rates, and a drop in consumer spending. We are seeing none of these events yet, except in certain industries such as residential building. During a recession, businesses will experience lower sales and revenue, which will lead to layoffs and decreased profitability. 

In preparation, businesses should take a closer look at their financials and identify areas where they can improve their ROI. This means analysing each activity and expense within the company to determine its impact on the bottom line. By doing so, businesses can identify areas where they may need to cut costs or increase efficiency to maintain profitability.

For example, a business may realise that their advertising is not yielding a strong enough ROI. In this case, they may need to re-evaluate their marketing strategy and focus on targeted communications that are more effective in reaching their audience. Similarly, businesses may need to assess their staffing levels, hours of work and shifts and make necessary adjustments to reduce labour costs without sacrificing productivity. 

Another consideration is the reliance on one product or one customer. You should assess the credit risk of your customers and ideally, your customers’ customers, to minimise the risk of bad debts. 

Where possible, businesses should build up cash reserves. This can provide a buffer in case of a downturn, allowing the business to continue operating while weathering the storm. Businesses may also need additional lines of credit or to secure additional funding to help them, noting that the granting of credit by banks will be driven by the strength of the business plan and equity.

Overall, taking proactive measures now to prepare for a potential future recession is crucial for businesses. By understanding the ROI for all activities within the company and identifying areas for improvement, businesses can strengthen their financials and better weather economic fluctuations. There are always opportunities in a downturn, be it increasing market share, acquisition of a competitor or innovation of a product offering. The ability to take those opportunities will be based on equity, cashflow, profitability and most importantly, a plan.

Want to know more? Let's chat.

Book an appointment with Steve, Nikita or Justin by ringing: 09 430 4888 or email: info@sudburys.co.nz