You know it’s coming, and there’s nothing you can do to prevent it. Yes, a recession will be here – whether its early 2020 or a few years down the road, it will happen. So, the questions have started rolling in on when it will be, how bad it will be, and what to do.
One thing to remember is that recessions don’t look the same for every industry. Take the great recession for example (Jan ’08 – June ’09). Industrial production fell 21%, while investment in software dropped 9%, and alcohol sales were essentially flat (up 0.2%). So how do you know how your industry will respond? Well, it comes down to how you answer these 2 questions:
Is your product a necessity?
If your customer doesn’t have to buy OR they can delay their purchase, you will get hit harder.
So how can we prepare to navigate the recession whenever it comes? For me, it simply comes down to addressing 4 items:
- Secure your cash position – A larger cash balance will give you the leeway to make the necessary adjustments to avoid a precarious situation.
- Diversify your clients – Don’t get stuck with a handful of large clients, and (if you can help it) don’t get stuck serving one industry. The more you are exposed to one client/one industry the more risk you take on.
- Adjust quickly to the change in demand – If your demand is suffering, don’t hesitate to make quick adjustments. But make sure you can move quickly to meet demand again.
- Pair expenses with income – Think of the idea of freelancers vs employees or renting equipment vs buying it. You only pay for it when you are getting revenue. Paying for capital you aren’t using will kill you.
While nothing like this is ever a sure bet, we think the dip will come somewhere around the beginning of 2020, but we don’t see any reason why the recession will be as bad as 2008. The last recession was a whirlwind of the complexities of housing, banking, and insanely complicated financial tools. Compared to that, our issues right now (an inflated stock market, uncertainty in foreign trade, and weakening consumer confidence) seem mild. Nevertheless, make sure you have a plan in place to navigate choppy waters.