In the world of business, no one is immune to recessions. Controllers are often the ones who must manage through these difficult times by making tough decisions and implementing strategies to keep their companies afloat.
Although there’s no one-size-fits-all approach to recession management, there are certain steps that all controllers can take to weather the storm. Here’s a recession management playbook for controllers, complete with key strategies for managing through tough economic times.
What’s a Recession?
A recession is a time of economic slowdown. It’s typically characterized by:
- Falling gross domestic product (GDP)
- High unemployment
- Low consumer confidence
Recessions can go for months or even years and can have a major impact on businesses of all sizes.
What Causes Recessions?
Many factors can lead to a recession, but some of the most common causes include:
- A decrease in consumer spending
- A decline in business investment
- A falling stock market
- An increase in interest rates
- A fall in housing prices
- A rise in interest rates
Understanding the root cause of a recession is important for controllers, as it can help them make better decisions about managing their companies through the downturn.
What Are the Effects of a Recession?
The effects of a recession can be far-reaching. They can impact everything from consumer spending to business investment to the housing market. Some of the most common effects of a recession include:
- Reduced income
- A rise in poverty
- A fall in asset prices
- Increased inequality
- Increased government borrowing
- Business closures
All of these factors can have a major impact on a company’s bottom line. As such, controllers need to understand the potential effects of a recession before making any decisions about how to manage their businesses through one.
How Can Controllers Prepare for a Recession?
There are several things controllers can do to prepare for a recession, including:
Reviewing Financial Statements and Making Adjustments as Needed
One of the most important things controllers can do to prepare for a downturn is to review their company’s financial statements and make adjustments as needed. These adjustments may include reducing expenses, increasing revenues, or other measures.
Not only will this help your company weather the storm, but it will also position you to benefit from opportunities that may present themself during a recession.
Working with Department Heads to Create Realistic Budgets
Another key step for controllers is to work with department heads to develop realistic budgets. This work will ensure that your company operates as efficiently as possible and help you avoid overspending during a recession.
Doing this has the additional benefit of making it easier to track expenses and identify areas where cuts can be made if necessary.
Developing Contingency Plans for Various Scenarios
While no one can predict the future, controllers can still develop contingency plans for different recession scenarios. This development may include strategies for reducing expenses, increasing revenues, or seeking alternative solutions to specific problems.
Depending on the recession’s severity, you may also need to develop plans for layoffs, plant closures, or other major changes. Although these plans may never be used, it’s important to have them in place so you’re prepared for anything.
Maintain Key Customer Relationships
During a recession, it’s important to maintain key customer relationships. This maintenance may mean giving discounts, extending payment terms, or providing other incentives to keep clients from going to your competition.
It’s also important to nurture new relationships during a recession. Although it may be more difficult to land new customers, it’s still possible. You can attract new business even in a down economy by offering competitive pricing and terms.
Building Up Cash Reserves
One of the best things controllers can do to prepare for a recession is to build up cash reserves. These reserves will give you the financial flexibility you need to weather any storm.
You can also use your cash reserves to take advantage of opportunities that may arise during a recession, such as investing in new products or acquiring struggling businesses.
Invest in Innovation
Controllers should invest in innovation. This work may mean investing in upcoming technologies or processes, or it may simply mean finding ways to do things better and cheaper.
Innovation will help your company survive a recession and thrive in the long run.
Stay Positive, Focused, and Proactive During These Difficult Times
Finally, staying positive, focused, and aggressive during a recession is important. This stance may be difficult, but it’s essential for weathering the storm.
Remember that recessions don’t last forever, and eventually, the economy will rebound. In the meantime, focus on running your business as efficiently as possible and taking advantage of any opportunities that come your way.
Recession Timing Predictions 2022 to 2023
The National Bureau of Economic Research (NBER) — the organization determining when recessions begin and end in the United States — hasn’t yet announced a peak date for the current expansion. However, many economists believe a recession could occur sometime between 2022 and 2023.
Controllers play a vital role in recession management. Implementing the steps outlined in this article can help your company weather the storm and even come out strong after a recession. So don’t wait until a recession hits to prepare — now is the time to start.
Learn More About Recessions in Our Community
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