Leadership

Get Ready for Recession!

10 tactics that past downturns have shown will keep your firm safe even if things get really ugly out there

Written by Rick Spence

You never forget your first recession.

Within the space of a few weeks, my employer in the early 1980s, the Financial Times of Canada, stopped hiring reporters and started laying them off instead. One of my colleagues, although not quite 30, never found another job, and eventually just quit trying.

Commodities slipped, profits slumped and the economy tumbled backward — it fell 4% (annualized) in the third quarter of 1981. Interest rates, inflation and unemployment were out of control. Friends and I repeated a mantra from the depressing Kurt Vonnegut: “Things are going to get worse and worse and never get better again.” (Try it — it’s catchy.) We honestly couldn’t see what could possibly happen to change things for the better.

Over time, of course, the economy stopped falling — with the aid of billions of dollars in federal deficit spending (for which you are still paying). But, in 1990, the economy was socked again. No longer a clueless cub reporter, I was now editor of a magazine. No longer could I just write about recession — now it was a business challenge, too. On Remembrance Day morning, I laid off three employees — all of them friends — in 90 minutes.

This laugh-a-minute stroll down Memory Lane is brought to you courtesy of the TD Bank Financial Group, whose senior economist, Derek Burleton, blew the dust off the word “recession” in a recent Globe and Mail interview. Based on TD’s most recent economic forecasts, he says growth in Ontario and Quebec will be so slow through this year and next (1.8% to 2%, annualized) that any nasty slip could tip Central Canada into recession (defined as two consecutive quarters of negative economic growth). Burleton believes that interest-rate cuts, a softening Canadian dollar, the improving U.S. economy and a stronger auto industry will buoy Ontario and Quebec by late next year. But if any of those factors are delayed, a recession could be in the cards. “It’s going to be a difficult ride in the next few quarters,” he told the Globe, which naturally entitled its story “Recession stalking Central Canada.”

Read: How Successful Entrepreneurs Beat the Odds for tried and true strategies from entrepreneurs who’ve been there, fought back and won

Recession-stalking seems absurd when Alberta is running full tilt, but the bank’s forecasters note that even the West faces tougher times as energy and other commodity prices drift earthward. Alberta could see its GDP growth fall to just 3.6% next year and 2.9% in 2008 — decent numbers, but down from a red-hot 6.8% this year.

So, how do entrepreneurs prepare for slower growth — or worse? Here are 10 tactics I picked up while living through the Great Recessions of the ’80s and ’90s.

1. Stay liquid. In tougher times, cash is king. Build up your cash reserves and consider postponing non-productive investments. Real estate, equipment, people and money may all be cheaper a year from now.

2. If you think you’ll need financing, line it up now. Arranging a higher line of credit won’t cost you a cent, but it could come in handy a year from now.

3. Focus on relationships. You’ll need the goodwill of both customers and suppliers. Explore alliances and co-op ventures that could help you grow revenue and deepen relationships without incurring higher costs.

4. Tighten up collection policies. Keep an eye on your creditors through credit checks and frequent accounts-receivable reports. Make sure your customers know when you expect to be paid, and that you have a disciplined process of reminders and warnings in place. Offer discounts for faster payment. (While you’re at it, why not press suppliers for extended payment terms?)

5. Cut costs now. Do you have people who are no longer contributing? Branches, equipment or property that aren’t earning their keep? Now is the time to act. Consider using contract workers, renting or leasing instead of buying, and cutting back non-performing product lines.

6. Get your employees onside. Let them know you’re expecting tougher times, and solicit their ideas for increasing revenues or reducing costs. Be open and honest with your employees, and they’ll return the favour.

7. Smarten up your compensation policies. Instead of handing out wage increases, offer more performance-based incentives. If employees meet or exceed expectations, everyone wins.

8. Invest in productivity. Now is the time to look at new equipment and technologies that will increase output and efficiency. New software, production processes and accounting systems can help you get more done at less cost.

9. Remember that recessions are part of the economic cycle. They’re a necessary (if Nietzschean) cleansing process. They wring excesses — as well as weak-hearted or behind-the-times underperformers — out of the system.

10. Pick a niche and expand. In tough times, customers look for cheaper suppliers and innovative solutions. Research suggests that companies that start during a recession are tougher and more successful than those launched in good times. So, don’t think of recession as a barren desert — it could be an opportunity for real entrepreneurs to show what they’re made of.

Go back to recession-proofing special report.

Originally appeared on PROFITguide.com