How A Business Can Survive An Economic Crash

Many people are now talking about a crash or recession. Google Trends reports that searches including “recession” doubled in the past few weeks. The risk of a recession beginning in the next 12 months is estimated to be 20%, according to The Wall Street Journal’s survey of economists. We are not now in an economic crash, even though the stock market is weak. But nearly half of the CFOs surveyed by Duke University expect a recession to begin by the end of 2019.

Now, before any crash or recession, some preparatory work can be done. When a crash or recession comes, damage control will be the focus. This article addresses damage control during a downturn, and it will lay the groundwork for an article about preparations ahead of time. This may seem like a backward order, but understanding what to do in a recession will help to understand how to prepare.

When a company’s sales drop, it’s time for management to understand its particular situation: How badly does the business’s particular sector of the economy typically decline in a recession? That’s important to know because the media will be abuzz with doom and gloom. A particular sector may not be hurt as badly as the headlines imply. Hardly any sector is recession-proof, but some sectors are not too sensitive. Health care is the best example of very light exposure to recession risk, as are some other services. On the opposite end of the spectrum, construction and capital goods are highly cyclical and may be much worse off than general news reports. Dialing in to the company’s own risk is critical to the action steps that follow.

The key to surviving a recession is cash. Operating expenses usually must be reduced when sales are down, and frequently that entails layoffs or furloughs. That’s unpleasant, but the companies most likely to survive are those that act quickly.

Businesses that offer trade credit must be adamant about collections. Salespeople will clamor to match competitors’ easy-credit offers. But sending product across the shipping dock without cash coming in is extremely dangerous in a recession. Providing services almost always requires the service company’s employees to be paid before the money comes in—and the money doesn’t always come in.

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