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Managing and leading a business is difficult at the best of times, but with talks of recession looming and businesses still reeling from the impact of world events over recent years, things are far from getting easier.
Business owners of more established companies will be no strangers to recession, in fact it’s a normal part of the economic cycle and since 1857, recessions have happened in the US approximately every three and a quarter years on average and lasted around 17 months although in the post-war period, recessions have typically been less severe and can sometimes last for just a few months.
In reality, we’re likely already in a recession but what does that mean and how have business owners successfully led their organizations through a downturn before?
What constitutes a recession may be defined slightly differently country to country, however it’s largely based on significant decline in a country’s economic activity also known as their output or GDP.
In Canada, the C.D. Howe Institute Business Cycle Council has the final say as to whether the country is officially in recession and makes its decision by looking at three factors; how much economic activity declined, how long it lasted and what the impact was cross-sector, taking into account both GDP and employment figures as the main measures of activity. The council’s official definition of a recession is a ‘pronounced, persistent and pervasive decline in aggregate economic activity’.
The U.S. has a similar organization responsible for maintaining a record of peaks and troughs in the economy and a definition of recession commensurate to the Canadian standard. The National Bureau of Economic Research defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. Importantly however, although the three determining criteria of depth, diffusion and duration need to be met to some degree, it might be that pronounced conditions in one area could offset less severe signals in one of the others; this is the case with the unprecedented pandemic downturn.
According to these definitions, neither the U.S. nor Canada are officially in recession at this moment, but most economists believe it can only be a matter of time and we would suggest that late 2022 going into 2023 will see more challenging conditions for business owners.
Whilst it might be difficult to do anything about a recession once you’re in the midst of it, the good news is that businesses can certainly employ strategies to prepare for a downturn in advance and in many cases, the business can come out the other side stronger and more resilient.
In essence, business leaders will need to look at how they maximize cash flow into the business and minimize expenses, albeit strategically, in order to survive and even thrive in a period of recession…
Aside from the practical considerations for business owners, steering a company through recession requires a certain kind of leadership that not all possess. Too often, business leaders will fall into the trap of focusing on the short-term, namely how they meet their obligations day-to-day and month-to-month, without any thought for their people. A remarkable leader will be able to strike a balance between the bottom line and long-term success for themselves and their employees. Employees are often overlooked during a recession and investing in them in the toughest times can improve loyalty once the storm passes.
Here’s a few ways that signify a great leader to their employees in times of recession…
The COVID-induced recession hit businesses without any prior warning. There have been many economic warning signs for an incoming recession this time. Business leaders that pre plan using worst-case scenarios and apply stringent cash flow hygiene processes can put themselves in a better position but dealing with the practicalities alone won’t be enough.
Being a good leader is not just about profit and procedure, riding out these tough times will require exceptional personal leadership skills.
Sallyport supports many business owners who are trying to navigate these uncertain financial times. There is still time to prepare for the expected downturn – reach out for advice on how to optimize your position, financial and otherwise, for the continued success of your business.
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