Credit Matters Blog

“The Recession is Coming, The Recession is Coming They Cried”

Kim Radok 21 October 2018

If you are in business, you are there to make money, irrespective of whether the economic climate is conducive to doing business or not. To think you can continue to do business in the normal way when a recession is due, is foolhardy. It also doesn’t make good sense.

Before I proceed, why do some of us believe that another recession is due? It doesn’t seem to make sense. After all, we are told the business environment looks good, particularly in Australia and the US.

Well for a start, recessions are a normal part of the business cycle, just as in other stages within the business cycle when times will be very good. In addition, history shows us that there is a recession approximately every ten years. Irrespective of whether you believe the last recession started in 2007 or 2008, the 10-year anniversary since the previous recession has already passed.

Once we accept that a recession is due, we should be looking for signs of the next recession and adjust our business practices and focus accordingly. Currently the signs that a recession may be due are:

  • increased debt levels globally and in every business and consumer sector;

  • the lack of bank credit which is being experienced by both consumers and business, and which is likely to become worse;

  • the failure of the central banks globally, with the exception of the US Federal Reserve, to increase interest rates despite many commentators saying business is in a good state and on the rise;

  • there appears to be only two mainstream asset classes deemed worth investing in, shares and property, both of which became over-priced and now are experiencing falling values;

  • the losses caused by the collapse in the price of the various cryptocurrencies;

  • increased losses from customer and employee frauds, etc.

What should a business owner be doing in the lead up to the next recession?

The experience of the survivors from the previous recessions suggest you start with:

  • paying debt off in all its forms;

  • collecting payment for all outstanding invoices as quickly as possible;

  • build up cash reserves;

  • invest in the foundations and processes of your business;

  • complete due diligence on every new customer who suddenly appears on your doorstep with a sales order;

  • don’t be desperate to sell at all costs and with a one-dimensional mindset but look for innovative sales strategies;

  • when selling, beware the three “F’s” – family, friends and future potential because if not managed properly, all you end up with is a loss;

  • restore any damaged reputational capital;

Once you have the above factors in order, look around for future business opportunities to grow your business. Again, you must ensure your cash and assets are not compromised by taking up on any of these new opportunities.

At the end of the day, recessions are a natural event in any business cycle. History and events currently occurring suggest the next recession is not far away and may have already started.

If you keep your eyes open and your emotions in check, you should be able to survive any recession with your assets and cash relatively intact. If you act appropriately, you may even earn more money than usual.

The proviso of course is, you prepare your business for the next recession by following a few simple rules provided by the history lessons of the past. With a bit of common sense and luck also, you might come out of the next recession doing okay.