The United Kingdom has entered into an official recession for the first time in 11 years.
A recession is a rough time for any business as it throws up a lot of uncertainty, where trading becomes difficult and, often, serious and difficult decisions need to be made.
A recession in the economy does not have to mean the end for your business. If you are prudent, and take the required measures, you can weather the storm.
I’m here to take you through some steps you can put in place immediately to prepare for what’s to come.
What is a recession?
Before I dive into the steps, it’s important to take a moment to understand what recession means. Most of us were around during the 2008 recession and many of us know of the historic recessions before our time. There are two pre-requisites to understanding recession.
The first is understanding that the growth (or decline) of the UK economy is split across four quarters, aptly named quarter 1 (January to March), quarter 2 (April to June), quarter 3 (July to September) and quarter 4 (October to December).
The second is understanding the concept of gross domestic product (GDP) which measures the total value of goods and services produced by the UK across the four quarters.
Now, a recession is when GDP is in decline for two quarters in a row, in other words when the UK produces fewer goods and services (in terms of how much they are worth) for two consecutive quarters. As an example, let’s consider the following:
- Quarter 1 GDP: £3 million
- Quarter 2 GDP: £2 million
- Quarter 3 GDP: £1 million
A recession would ‘officially’ occur at quarter 3 as that marks two consecutive quarters of decline in GDP.
Manage your liquidity
Liquidity is the ability to turn your assets into cash without affecting its market price. During economic turmoil it is vital that your business liquidity is high i.e. it’s quick and easy to turn assets into cash.
Have a good and detailed look at all the money you owe and identify ways in which you can relieve these debts without delaying payments by liquidating your assets to pay them off.
If you owe money that is due, try and clear all your accounts and do not try and hold onto the cash – as tempting as that may be. Keep a good relationship with your suppliers and lenders as it’ll be helpful when the sun rises again. The last thing you want is to miss payments, get charged exorbitant amounts of interests, or even run the risk of formal action being taken against you.
Negotiate with your debtors
Remember that if your business is struggling, the people who owe money to you will be too. Try your best to get whatever you can back from them. This may mean offering them a discount or another incentive or negotiating an effective payment plan that works. What you cannot afford to do is continue producing for or supplying to them with no guarantee of receiving payment on time – or any payment at all.
Cut costs
Cut those costs that do not compromise the quality of your product or service – you do not want to drive away the few customers that are still coming to you only because of poor quality. Maintaining your brand image and reputation is an absolute must, as it is these customers will who come back to you and bring others with them, once the economy begins to recover.
An example of cutting costs without reducing quality could be to shut up shop and move online. Trading via a website and social media is significantly inexpensive compared to running a brick and mortar operation.
Be open and transparent with your creditors
You do not want to spoil relationships with your creditors. If you are unable to pay them, just speak to them and try and reach an agreement. Do not ignore them and risk being taken to court or being put through another abrasive legal process to extract the cash.
The bottom line
The bottom line is to treat recession like a season. All seasons come to end, and so will the recession. Your primary objective should be to avoid burning bridges with creditors and suppliers by being as liquid as possible – meaning to clear due or overdue payments, even if it means having to liquidate assets, and of course, exercising patience and negotiating payment from your debtors and customers even if it mean discounts, incentives, or long term payment plans.
If you want to know more about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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