Recession Planning: How to Emerge Stronger from Uncertain Times

How can you position your business to master an upcoming recession? How can you even turn these unfavourable conditions to your advantage? We provide you with answers and highlight how Yokoy’s finance automation and spend management solution can facilitate this process.

There are several unique factors that are contributing to the economic downturn we are facing at the moment. However, one key lesson from the past holds true this time as well: with the right strategic approach, companies can leverage the upcoming challenges to become more resilient and emerge stronger.

Downward revision of global economic growth

The baseline forecast is for the global economic growth to slow from 6.1 percent in 2021 to 3.2 percent in 2022. Lower growth earlier this year, reduced household purchasing power, and tighter monetary policy led to a downward revision of 1.4 percentage points in the United States. In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points. This has had major global spillovers. In Europe, significant downgrades reflect spillovers from the geopolitical crisis and tighter monetary policy. The IMF (International Monetary Fund) projected that global inflation will rise due to food and energy prices as well as lingering supply-demand imbalances. It anticipates that inflation will reach 6.6 percent in advanced economies and 9.5 percent in emerging markets and developing economies this year.

Downside risks

The risks are overwhelmingly negative. The war in Ukraine could lead to a sudden stop of European gas imports from Russia. Inflation might be harder to bring down than anticipated. Tighter global financial conditions can induce debt distress in emerging markets and developing economies. Renewed COVID-19 outbreaks and lockdowns as well as a further escalation of the property sector crisis might further suppress Chinese growth. Geopolitical fragmentation could further impede global trade and cooperation. In addition, climate-change induced extreme weather events as well as measures to mitigate climate change will inevitably also have an impact on economies worldwide. 

There is a plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6 percent and 2.0 percent in 2022 and 2023, respectively.

Recession planning: prepare your business for the upcoming recession

Based on the IMF World Economic Update, a recession is almost inevitable. So it's important to prepare for a worst-case scenario. Lessons learned from previous downturns show that building resilience and making the right strategic choices are key. Recessions can be viewed as a high-pressure exercise in change management. To navigate a recession successfully, a company needs to be flexible. Having a plan will help your business thrive during a recession.

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Pre-recession planning scenario

Mastering a downturn requires deft financial management. It’s more than just cutting costs. Thriving in a downturn requires a complete understanding of your company’s financials. Only then will you be able to make informed decisions, prepare and react to unforeseen events. Finance automation – if done right – can contribute to an assessment of your company’s starting position when facing a recession. Once you have a clear picture of your company’s strengths and weaknesses, you can build your company’s resilience and turn potential threats into opportunities.

Some strategic measures that you can take:

  • Restructure your cost base: reallocate and optimize funds and resources, ensure that you have sufficient working capital, cut costs, and control spending.
  • Challenge existing workflows and processes to make them faster, simpler, and more agile.
  • Invest in automation to reduce repetitive manual tasks and free up human resources for more skilled and rewarding work with a higher added value.
  • Invest in information technology and data management to support informed decision-making.
  • Focus on the customer: Focus on providing a positive customer experience before and after the sale to drive repeat business, enhance customer loyalty and increase growth. Create a culture around the customer’s needs. Deliver value.
  • Secure your talent: Think twice before you start laying people off to cut costs. Examine other options to downsize temporarily before taking any drastic measures that could result in losing talented and skilled employees. 
  • Continue to focus on sustainability within your company and your supply chain. Sustainability might seem a luxury during a recession. But people remember who stuck to their principles when times were tough.
  • Plan for the long-term and plan for multiple scenarios: An economic downturn is generally followed by an economic upswing. Make sure that your company is ready for take-off when the recession is over.

How can Yokoy help you weather the storm and come out on top?

Yokoy helps you preparing for a recession, so you come out on your best. With our state-of-the-art finance automation and spend management solution, you can get real-time control over your financials and automate the underlying processes. 

Want to learn about the savings potential of Yokoy’s spend management solution? Check out this article.

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