7 Steps to Recession-Proof Your Business

Position for Upside During a Slowdown

As countries reemerge from the pandemic to normal business operations, corporate CFOs face a blend of 40-year-high inflation, record-low unemployment and supply chain turmoil. With some economists predicting a recession on the horizon, companies should take proactive measures to weather whatever comes next.

1. Assess Your Cash Flow and Implement Rolling Forecasts

Preparing for a downturn starts with a cash flow analysis to assess your working capital. In addition to the standard cash flow statement, it’s useful in a recession to keep a close eye on free cash flow, which excludes non-cash expenses and interest payments but adds in changes in working capital. That gives you a clearer view of operating cash flows.
Once you have a handle on cash, implement a rolling forecast methodology that enables you to dynamically adapt to market and economic changes.

2. Develop Tiered Forecasts for Proactive, Surgical Cuts

In a NetSuite Spring 2022 Outlook Survey, the number-one priority for CFOs over the next 18 months was to manage costs. One approach in doing so is compiling tiered forecasts in response to revenue reductions of 10%, 20% and 30%.
Reductions are Response 101 when facing a recession, but you need to be sure these cuts can be dialed back as conditions improve.

3. Launch Customer Segment Analysis Exercises

Consider how customer demand and supply availability will change as the economy slows. Modeling likely buyer behavior will provide insights into how you might adjust production.
On an individual level, customer analysis is critical. Look at how businesses weathered the pandemic, how many are at risk and what percentage of revenue comes from customers that might not survive an extended downturn.

4. Reevaluate Your Supply Chain — Again

When recessions hit, customers may stop buying, while suppliers could cancel orders and delay deliveries. You’re left with idle production lines and some orders you can’t fulfill even as other inventory piles up. To assess and minimize supplier risk, NetSuite provides you with real-time visibility into supplier performance across various aspects of your operations. This information helps you make informed decisions about which suppliers to work with, and how to optimize relationships with them, to improve your overall business performance.

5. Rethink Inventory Management Strategies

Hanging on to excess inventory during a recession may make goods more susceptible to obsolescence, theft and damage and increase storage and carrying costs. On the other hand, some extra inventory is a buffer against supply chain issues.
That’s why demand planning is important. NetSuite’s demand planning tools use historical data and statistical algorithms to create accurate demand forecasts. By analyzing demand trends, you can take the best course of action with inventory levels and reduce the risk of stockouts or overstocks.

6. Invest in Automation and Shift Workers to Higher-Value Tasks

Believe it or not, heading into a recession is a good time to invest in technology that automates manual tasks and frees up team members for more strategic work. Automation gives businesses breathing room to reevaluate workflows, fine-tune processes and implement new technology. Advanced systems provide real-time data and reporting dashboards that enable leaders to closely monitor results and react quickly.
Automation also closes the loop on monitoring cash flow, helps speed up AR and AP tasks and reduces the number of errors. It provides increased efficiency and better data quality, lowers labor costs and mitigates risks, including invoice fraud.

7. Use Technology for Scenario Planning

When growth slows, leaders need a holistic view of the business to make sure it’s operating as efficiently as possible. Top scenario planners use technology like ERP and financial software to:

  • Establish guidelines for how the organization responds in a financial downturn
  • Focus on top financial uncertainties and develop scenarios for them
  • Build a nimble response strategy to each scenario

By taking these proactive measures, your business can ride out the coming storm. Talk to StellarGrade today to find out how NetSuite can help your business stay recession-proof!