How to manage your business in and out of a recession.

It’s going to be another tough year, with economists predicting that the UK faces a recession in 2023.

According to the Office for Budget Responsibility, the economy is set to remain in recession throughout 2023, shrinking by 1.4% throughout the year.

There’s no getting around the serious impacts that businesses and households will be facing in light of this. But there are actions you can take as a business owner, and practices you can put in place to help you weather the storm.

What does recession mean for business?

A recession, generally defined as a decrease in GDP for two quarters in a row, comes with several knock-on effects for businesses.

The severity of these depends on the type of business you run. Generally speaking, sales and profits might reduce as customers tighten their belts on spending, cutting back on all but their essential purchases. Lenders, too, become more wary and access to credit gets harder.

Your existing customers might find it harder to pay you on time – or in the worst cases, go out of business themselves. This can create severe cashflow challenges, leaving you with late or unpaid invoices, along with extra costs for you as you chase your debtors.

How to prepare for recession

The key word here is ‘prepare’, and hopefully you’ve already spent some time readying your business for what’s to come. It’s true that flexibility is important, but relying completely on knee-jerk reactions to financial shocks won’t give you the foundation for a resilient business.

According to Harvard Business Review analysis, published in 2010 following the 00s financial crash, the companies that stagnated in its aftermath were those that failed to make contingency plans or consider alternative scenarios. Instead, they’d “switched to survival mode, making deep cuts and reacting defensively”.

Instead of taking a reactive approach, now’s the time to make sure you have a robust finance system in place, which you can use to make predictions about the future and analyse your financial data as it comes in.

  • Record and measure key data: To do this, you first need to understand which metrics are most important for you to measure. We’ve talked about how you can do this effectively in our previous blog post on the importance of measurement in business, and we’ll be publishing articles throughout the year to help you understand your numbers as a business owner.
  • Look at current challenges and weak points: For example, with a good view of your cashflow, you should be able to start identifying peaks and troughs, working out how best you can guard yourself against future problems, or tackling obstacles you’re already facing such as long waits for payment.
  • Forecast and assess potential scenarios: Data on your past and present performance can also tell you about the future. Effective forecasting should take into account best and worst-case scenarios, and help you make decisions for the long-term.

With clear and detailed information on the most important measures of your business’s performance, you can determine your financial priorities – whether that’s managing your expenses, building enough of a cash reserve that you can absorb losses, making operational changes to save costs, or another approach altogether.

For help preparing for 2023 and understanding your key business data, get in touch.

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