How top CFOs recession-proof their business

The prospect of a burgeoning recession can get even the most seasoned C-suite honchos quaking in their boots. Understandably so, considering it significantly increases the uncertainty of a business’s success.

Thanks to fewer opportunities, more hesitant investors, and low consumer confidence, your company may find itself in stormy seas if you do not have enough liquidity to see you through. 

And because recessions are famously hard to predict (both in terms of their timing and the impact on your industry), it’s important for CFOs to build their company’s financial resilience.

Read on as we share tips to make your company recession-proof, improving its chances of emerging stronger from a future downturn.

Top 3 strategies to keep companies afloat during recessions

The most recent recessions, of 2020 and 2008, dealt a fatal blow to many small businesses and enterprises alike. But, a few survived, nay thrived, during this period. 

The success of these outliers can be attributed to their agility in the face of adversity, and their unique approach to annual budgeting and planning. 

Should difficult times strike again, here are a few steps that CFOs can take, in order to build their company’s resilience in the face of downturns and market volatility:

  1. Take control of your cash flow: 

The moment a recession strikes, most companies resort to cash outflow reducing tactics such as layoffs, pausing recruiting, delaying bonuses, plant shutdown, reducing inventory, etc. The tap is also turned off on non-critical projects run by functions such as HR, marketing, and research. 

Such reactive moves can really cause a dip in internal and external sentiments. 

Therefore, it is time for CFOs to think beyond cutting costs. Recession or not, here are 9 ways to play the long game and seize control over your cash flow:

  1. Focus on creating a sticky service or product that customers stay loyal to because it’s integral to their business or daily life.t. 
  2. Keep a generous buffer of cash reserves, to pay off short-term debts, in those scenarios where your revenue source dries up. This is how the American bank Wells Fargo survived over 4 financial crises between 1987 and 2008. If you have enough money set aside, you could also acquire competitors for cheap, putting you ahead in the race.
  3. Communicate with and upskill your employees so as to accelerate productivity and innovation. Especially when there is a fall in consumer and business confidence, companies with innovative products are the ones that make it big.
  4. Maintain relationships with many competing banks for easy access to credit and short-term funding, especially during emergencies.
  5. Build the flexibility in your company’s system to quickly and costlessly scale down operations, this will enable business continuity.
  6. Nurture your relationship with suppliers so that they will be more willing to offer discounts and delayed payment options during rough financial patches.
  7. Diversify your business into multiple products or services. So, even if one product fails, you will have another to fall back on. 
  8. Review and identify those customers who are seeking extensions on the line of credit. You want to make sure that the due amount is secured from them before they file for bankruptcy.
  9. Adopt countercyclical patterns of cash utilization so as to propel your company into growth mode. In the recession of 1990-91, companies that did so had 25% higher market-to-book ratios than those that employed defensive strategies. 

The following excerpt from Tom Blitz’s and Aneel Dellawala’s article sums up this strategy quite accurately, “Broadening priority actions beyond short-term cost reductions allows a CFO to reposition the enterprise in the face of the uncertainty during a recession. It enables a CFO to move from playing defense to playing offense, and to shift the message from a spirit of retrenchment to stimulating inspiration both externally and internally.” 

2. Make data-backed decisions:

It is a good practice to regularly track how fluctuating prices and demand affect the performance of your business. The insights thus garnered can be leveraged to make the right financial decisions for your company. 

For example, dwindling sales at physical stores could mean that you look for alternative distribution channels such as e-commerce, or an increase in sales of your economy product packs is a sign to put out more value-based marketing messages. 

Chris Arndt, Director of ORBA’s Cloud CFO Services, believes in the power of data analytics too. In one of his LinkedIn posts, he says, “Even the best value proposition doesn’t make your business recession-proof. So how can a business double-down in times of economic uncertainty? Begin with your data and then focus inward to grow.” 

3. Be open to pivoting your business model or target customers

During recessions, especially when money is tight, CEOs tend to lean more on CFOs when making business decisions. You must take this opportunity to flesh out contingency plans for two or three scenarios- from base to worst-case. To get your company through rough patches, these plans could call for structural changes to the business.

These pivots could range from proactively entering into an M&A or radically reevaluating the employee culture, the core business model, portfolio of products, or even the customer base.

You also need to build a company culture wherein the C-suite and employees quickly embrace and run with these changes, for the greater good of the company. 

A good example is how so many businesses shifted to a work-from-home culture during the 2020 recession and started using eSignature, video conferencing, and wearable solutions to make everyday business contact-free while saving on office rental costs.

As David Coles, President & Wealth Advisor at WMBC, told Forbes, “Realize that change in your business will need to occur every five years or so. Surround yourself with a team that is capable of adapting to and seeking opportunities in change. Also, leverage technology, which will continue to advance at an incredible rate. Do not be afraid it will take away from your business—rather, embrace it to improve your business.”

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