Due to the devastating impacts the coronavirus pandemic is having on the global and domestic economies it is widely accepted that a recession is on the very near horizon. An economy officially goes into recession when it experiences two consecutive quarters of negative growth in GDP.
Tony Alexander, formerly BNZ’s chief economist, invited readers of his weekly newsletter Tony’s View with experience of past recessions to send their thoughts on the most important things they did to handle past downturns.
These experiences are summarised into 10 key points.
- Forget profit and balance sheets and devote all attention to cash flow. Forecast it out at least six months, and assess and update that forecast weekly.
- Go as early as possible to your bank with your forecasts, your plans, how you will assess them over time, and what you want from your bank. The bankers will be busy so the easier you can make their job of selling your request up the line the better for you.
- Trim every expense not core to your central product offering, ranging from sponsorships to magazines, company cars, etc. Explain your situation to your landlord and suppliers and ask for discounts. 15 per cent supplier discounts were common.
- Make cost cuts including staff reductions as early as possible, trying to avoid having to make further rounds of cuts as the months advance. Act early, act big, act once.
- Communicate fully and honestly with your staff, suppliers, bank, and clients. Get as many people as possible on-board with your plans.
- Look after your mental and physical health, and seek advice from a wide range of sources – definitely not just your banker and accountant, and almost certainly not from your mates around the barbecue.
- Trim back advertising and concentrate on marketing to targeted audiences.
- Look for opportunities in the form of cheapened competitors, but stay focussed on your core areas of strength.
- Stop following negative media, speculation on how bad things might get, and measurements of the depth of downturn. Pessimism leads to inaction
- Remember that this too will pass as all previous recessions have, and note that many people regret that once they had cash flows under control, they stayed too cautious for too long and missed some good opportunities.
PWC partner Anand Reddy said this recession would be different to anything we had experienced in the past because it had been born not out of financial factors but for health reasons.
“It’s not a financial recession, it’s a health crisis.”
Businesses needed to position themselves for a future economy that featured less travel and face to face contact. As a result businesses that utilised technology and online sales would perform better than more traditional businesses, he said.
“Traditional SMEs which haven’t invested in technology will feel more exposed in a recession environment.”
In the immediate future business owners should be thinking about tactical decisions that could be made during the crisis response, he said.
This should be followed by more strategic thinking for the medium to long term response.
See original article by John Anthony on Stuff https://www.stuff.co.nz/business/industries/121129119/coronavirus-business-leaders-share-tips-for-surviving-covid19-crisis-based-on-lessons-from-past-recessions
For more from Tony Alexander see http://www.tonyalexander.nz/