I don’t know if there will be a recession in 2021. No one does. What I do know is that I have been through at least five difficult economic downturns since starting my business in 1990. And what I witnessed is that some firms were prepared and some were not. Some went out of business while others thrived.
I have spent many years analyzing why some firms did so much better than others. In a few cases, it was luck, in most cases it was because of careful planning, diversification and appropriate responses.
Over the years I have developed a strategy for planning for these “situations”. I don’t like to label them as “bad” because I have seen some firms come out stronger and more competitive after a recession. Just the way you think about it can make a difference in the outcome. If your firm thrives and some of your competitors fail, your firm could be in a much stronger competitive position after a recession ends.
Certainly, the events of 2020 and the “shock” of moving staff to work at home caught everyone by surprise. Unless you had done business in Asia and seen something like this before, it is unlikely you were totally prepared to shut down your offices and move all employees into a virtual working environment. But some firms were ahead of the curve and able to pivot and adapt much faster than others. Some had invested in the technology necessary to quickly enable a remote workforce while others struggled. Some had work-at-home processes and policies already developed. Those firms had an advantage in the early days of the Covid-19 lockdowns.
PREPARING FOR 2021
With the uncertainty of 2021 looming, there are only three possible scenarios that you may find your business this coming year – worse off than 2020, relatively the same as 2020, or better than 2020. The answer as to which one you will experience may be up to you and how you respond.
A good recession plan should look at all the possible scenarios that could face your company. In each scenario, there are factors that will influence your immediate, short-term, and long-term actions. The key to a good plan is determining what those factors are, how much control you have over them, and what you will need to do to mitigate any negative results that you can anticipate.
When a recession is combined with other factors such as a pandemic, national emergency such as 9/11, or natural disaster that affects a large part of your work, all the possible issues impacting your team and projects should be considered. Factors to consider include transportation, power and internet, and even school closings that affect employees with young children.
Most business owners immediately focus on financial factors first. Cash must be one of the first assets we want to protect. But there are several other critical factors that should get just as much attention including key clients and employees, subcontractors, current projects in progress and continuity of key business processes such as site work/ capturing of field data, access to systems, timesheets and billing.
By breaking your plan into those factors affecting Revenue and Expenses, and assigning key leaders to each major category, you can quickly implement your plan without all the scrambling around that often ensues when disaster hits.
Revenues are the staple of business continuity. By breaking possible revenue levels into five possible scenarios, you can carefully plan vital actions to stabilize future cash flow, and strategic adjustments to expenses.
While your annual business plan may look at a target revenue level for the year, the recession plan should consider at least five levels of revenue and your corresponding actions. The plan should evaluate each category below at a detailed level to determine stability of revenue. Based on each of the potential revenue levels, the following categories should have specific actions associated with it:
- Retention of key clients
- Viability of current projects
- Current sales opportunities / outstanding and ongoing proposals
- Employees ability to work and be productive
Based on the five revenue scenarios determined above, you can plan corresponding actions for your key business expenses. Your expenses should be evaluated and weighted for importance in the event your cash flow slows, and expenses need to be cut. Expenses should be put into categories and then subcategories for easier review. Key leaders can be assigned to each category to report, adjust or even stop expenses if necessary.
For example, a major category would be Employees, and subcategories might be salaries, insurance, 401K, other benefits, current hiring efforts, etc.
In looking at the five or so revenue scenarios you have evaluated above, you can determine necessary actions that will need to take place at each level including layoffs, salary adjustments, reducing 401K match, etc.
MAKING YOUR RECESSION PLAN
By having this level of planning deliberated and documented in advance, you can spring into action when crisis hits and not have to spend countless hours meeting to discuss all your possible actions. Your plan will give you the roadmap to act quickly, no matter what happens, and successfully communicate to your staff, clients, and vendors.
Your plan should also include exactly where you will get accurate market information to rely on. With a plethora of webinars, articles, LinkedIn posts and other resources to consume, it can be difficult to determine where the best data is to make critical decisions. Having vetted research can be part of your advanced strategy so that time is not wasted, and bad data is not used to make decisions.
Without this level of planning, weeks or more may go into trying to figure out what to do, how to communicate and where to prioritize the precious time of firm leaders. Instead, you can be on the phone with key clients, evaluating market information, and reassuring employees and key stakeholders to reduce panic right away.
WHAT ARE YOUR LESSONS LEARNED?
Take the lessons of this last year and make the most of it. Look at what worked and didn’t work, where your firm can be technologically stronger, and how you can reduce risk in the future. Put your plan in writing and let your team know that you are preparing for the worst but planning for the best.
By preparing for the worst–case scenario, good judgement will prevail, and the stress and agony of your toughest decisions will be reduced next time you have to face the uncertainty of a recession (and you will).
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