What Will the Coming Recession Mean for Your Business?
by Arina Smith Business Development 29 November 2018
If the economy appears to be stronger than ever, then why does the stock market appear to be in a freefall? The answer might be summed up in one word – “recession”. Actually, the fear of one as observers increasingly are talking about the possibility of a recession looming on the horizon.
While this doesn’t mean that we are headed toward a reprise of the dark days of October 2008, it does mean that the current period of economic expansion is getting long in the tooth and this has market watchers concerned about what comes next.
If you are a business owner, this means that you will need to start thinking about where your company is most vulnerable and what you need to do to plug the holes. With this in mind, here is some insight on what the coming recession will mean for your business.
How Certain Are We That a Recession is Coming?
The reality is that you never really know that a recession is coming until you are amid one. There are a few signals which economists look to as indications that the likelihood of a recession is near.
First, we have the price of assets. These include items such as home, stocks, and other assets and if we look at the last two recessions both went through bubbles before, we were hit with a recession. In this way, a recession can be viewed as part of the economic cycle and if you are prepared it can be a good time for your business.
Then we have the energy prices which tend to spike when the economy is overheating. The reason for this is that people tend to travel more when times are good and factories – especially in energy-intensive industries – are also consuming more black gold as well as natural gas. But this time might be different, especially as energy prices have been crashing recently.
In addition, we have what is known as an “inverted yield curve”. This happens when the yields paid on 10-year and 2-year bonds flip, with the shorter length bond paying more than the longer bond. While borrowers might welcome this situation, it is a signal that the market is no longer pricing the long-term risk tied to bonds of longer maturities.
Lastly, there is the dreaded “I” word – inflation. This tends to rise as the economy grows due to the scarcity of resources. As such, it is all about supply and demand and rising inflation is just a signal that supply cannot keep up with demand.
But remember, there is no guarantee that just because any of these conditions are taking place that a recession will happen. As such, we usually don’t know we are headed towards a recession until we are already in one.
What does Will A Recession mean for Your Business?
As a business owner, you probably never want to see a recession. But if you’ve been in business long enough, you’ve probably had to survive multiple recessions. This is good as you will have an idea of what needs to be done to make sure you can survive the ups and downs of the economic cycle.
For those business owners who haven’t been through a recession, here are a few pointers on what it will mean for you. First, look for credit to get tighter during a recession. This is usually because marginal borrowers will default on their loans, forcing banks to tighten their lending requirements and this could hurt your finances.
Another thing to watch out for is consumer spending as it will fall. Even if you are a B2B business, this is something you need to look out for as it probably means you will have fewer orders than before.
By extension, you will need to look at the costs associated with running your business. This includes installing tighter inventory controls and even looking at employee costs. While some business owners assume this means cutting back on hours or layoffs, another way to approach a recession is to look at the costs associated with your human resource function.
As such, you might want to consider leave management outsourcing, or a similar option, to better manage personnel-related costs without needing to demoralize your employees during a recession. Not only will this help you to reduce costs but depending on the number of employees, you might also be doing your part to help the economy bounce back.
When it comes to recessions, the answer is not “if” but “when” and for your business to survive this means that you need to have access to credit lines and good control of your costs. Only in this way can you steer your company through the uncertainty created by an economic downturn.