By Alan Beaulieu on Jan 15, 2020 9:24:27 AM
Recessions happen, and you can successfully prepare for them with a reliable set of leading indicators and an understanding of your own rates-of-change. There are five positive benefits from a recession. These benefits will propel you to greater success and profitability in the downturn and in the upcoming recovery/growth trend.
- Time and focus. The business slows down in a recession. There is less activity and less throughput, and the pressure of keeping up with daily demands eases. This is a perfect time to focus on your business in two important ways:
- Cut costs. Recessions provide for the perfect opportunity to condense, consolidate, or eliminate portions of your operations. The cost savings are real, and the increased resources can be later put to use elsewhere. The cuts can occur in products/services, processes that are no longer needed, or places in your businesses that have failed to meet profit expectations while you were busy focusing on other areas of the company.
- Prepare for the future. Preparing for the coming recovery requires a studied look at what resources will be needed during it. What factors of production will you need? What are your lacks that will hinder growth when the good times return?
- Weak competitors are made even weaker in a recession. They often have neither the agility nor the capital to navigate these turbulent waters, which presents your firm with a great opportunity to gain market share. Furthermore, recessions can provide for good acquisition targets, either vertical or horizontal, enabling you to purchase a firm at a noticeable discount in preparation for your busier future in the upcoming rising trend.
- Costs are often lower in a recession, and that includes capital projects and capital equipment. In a low-opportunity market, margin concessions are easier to negotiate from contractors and equipment vendors. That makes a recession the perfect time to save money on a purchase and thereby increase your ROI in the future. Spending money on efficiency gains now will pay rich dividends in the future, especially during the next downturn.
- A recession may provide for a real cash savings on real estate, for personal or business benefit. Businesses that lease may find that landlords are willing to negotiate on terms and provisions during this time period, as they grow concerned about a protracted downturn and increased vacancies. It is often necessary and helpful to extend the term of the lease in these negotiations.
- Recessions allow you the time to develop and market the new products and services that will sell well in a recovery. While your competitors are worried about hoarding cash, you can take this time to develop new offerings geared toward increasing your profit margin as well as your market share. Many of your competitors will wait until the next recovery to spend the cash on developing and marketing products or services. You can get ahead of them by preparing before the recovery begins.
As you can see, there is opportunity to be had during recessionary periods. However, you will only have the cash and ability to implement these strategies if you know far enough in advance that the recession is coming. It is important to use reliable market forecasts and company forecasts so you can see recessions coming years in advance – and benefit – when your competitors may not.