Recessions are frequent and the UK has experienced some form of ‘economic crisis’ in almost every decade since the 1950’s. High interest rates, high unemployment, and high inflation, are typical challenges for a business to negotiate, and they generally run for a few years.
Although the current belief of the experts is that we are expected to be in recession through 2023, the starting point for most companies coming off the back of the Covid pandemic and Brexit is that we should all be better prepared and operationally more efficient than going into recession on the back of a boom economy.
Having worked through multiple recessions, although the characteristic are generally the same, the positive variable this time is that we still have a low rate of unemployment and around 1.2 million job vacancies in the most recently reported figures. It is always a tough balancing act negotiating periods of slow growth or recession, and a secondary objective for any board is to allocate resources to position the company to be in a place to take advantage of the economic upturn when it arrives.
The focus for the finance team in recessionary times usually shifts to cashflow management and maintaining an open and productive relationship with the banking partner. My experience working in SMEs is that cash flow risks need a clear escalation process, involving the FD and Operational Directors earlier than would be the usual case. Senior managers must almost drop down a level in a recession to bring their expertise and experience faster and more focused to the areas of the business that are critical to cash flow management as credit tightens.
Experience says that in periods of slow growth and recession, the FD also needs to assume greater responsibility across the business to challenge decisions around operating costs, headcount, and capital spend. This is combined with a greater focus on forecasting and not just reporting the numbers to ensure the business is reacting quickly and flexibly to rapidly changing circumstances. As well as ensuring operational and financial efficiency the aim is to put the company in a position to benefit from economic growth that always follows a recession. Even in recession, in a candidate short market retaining and hiring exceptional staff remains the number 1 priority.
Another area that we have identified as a goal to exit the recession, when it arrives, in a more competitive place is technology. We have for the first time appointed a Director of Technology, not to run the IT infrastructure, but to increase the ROI on our existing technology, assess competitor advantages, and identify new technology that will give us a competitive edge in future years.
Finally, the world is a small place and not all of it is in recession and opportunity exists outside of the United Kingdom. The other ray of sunshine is that there is always a huge opportunity coming out of recession which the best run companies will be in position to take advantage of and increase market share, hoping that this is a short-term adjustment caused by global factors that will correct itself once the world calms down.
