During the past few weeks, the dreaded R-word – recession – has permeated the business news cycles. This followed a mid-August hiccup when the yield on the 10-year Treasury note temporarily fell below the 2-year rate – a situation known as an “inverted yield curve,” which many economists consider to be a precursor to a recession.
Traditionally, a recession is defined as two or more quarters of negative GDP activity. And while that has not occurred, concerns over the U.S.-China trade war and a slowdown in the global economy has generated a new wave of jitters.
Economic experts are split on the possibility of a recession. Federal Reserve Chairman Jerome Powell is among the voices who are optimistic on the near-term future of the U.S. economy.
“We’re not forecasting or expecting a recession,” said Powell earlier this month while speaking at Switzerland’s University of Zurich. “The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up. Our main expectation is not at all that there will be a recession.”
However, there is a less optimistic view advocated by Ray Dalio, founder of the Westport hedge fund Bridgewater Associates.
“Recessions are always inevitable,” said Dalio last month in an interview with CNBC. “The only question is: ‘When?’ I think that in the next two years, let’s say prior to the next election, there’s probably a 40% chance of a recession. I think you are seeing this around the world.”
So, what should a business do to prepare itself ahead of a recession’s approach?
A recession should not be viewed as the end of the world, let alone a business killer.
“We started this company in a recession, in 2008, right after I was laid off,” said Ramon Peralta, founder and chief brand officer at Peralta Design in Shelton. “I felt that if we were going to succeed, it was because we focused on principles. Business will still happen, even in a recession.”
Nicholas Coriano, partner at Bridgeport-based Cervitude Inc., warned that not having an emergency plan prepared for such an event is a mistake.
“Businesses do not plan for a downturn,” he lamented. “Recessions usually come in 10-year cycles and people forget easily.”
For Coriano, the first course of action is to ensure capital is set aside to weather rough economic waters.
“You need to budget and save out for six months to one year,” he said. “In a downturn, credit lines get pulled.”
Christopher Salem, a Danbury-based business and personal development consultant and host of the weekly “Sustainable Success” talk show on the VoiceAmerica online radio network, also recommended putting money aside. For him, those funds should be stored away to ensure new product development will continue when the recession hits.
“You never want to halt product development, even in a recession,” he explained. “If things take off, you’ll be in a better position.”
Michael Goldrick, executive vice president and chief lending officer at PCSB Bank in Yorktown Heights, recommended that a business owner first communicate with his or her banker regularly on their company’s finances, especially ahead of challenging times.
“That puts us in the best position to offer useful advice,” said Goldrick. “Whether it’s a line of credit to help smooth out cash flow, or a term loan to make an important purchase, we need to understand exactly where a business stands to help them make smart financial decisions. Timely financial reporting will help business owners stay in control of their finances and keep their banker well informed.”
Jason Amenda, who runs both Barnum IT and Barnum Tax LLC in Stratford, observed that a company’s high-tech setup should be analyzed ahead of a possible recession.
“I help clients leverage technology all the time to save money,” he noted. “No, I am not suggesting purchasing robots to replace your employees. Simply look at how technology can help save time and money. Automating some tasks in your everyday business process will save money in the long run and increase profits.”
Mike Roer, president of the Entrepreneurship Foundation Inc. in Fairfield, went even further by recommending a line item inventory of how to work more cost-effectively even if a recession never materializes.
“I remember that during prior recessions, companies were taking a hard look at every line item from a zero-based budgeting standpoint and found a lot of fat to cut,” he stated. “They had not done this paring before simply because they didn’t have to. Afterwards, we all realized we would have been a lot more profitable had we also instituted better cost-control measures during the more prosperous years.”
Kelly Campbell, head of Agency Growth Consultant LLC in Nyack, urged businesses to enhance and solidify client relationships well ahead of an economic crash.
“Whether your business is product- or service-based, the foundational way to become recession proof now is to become irreplaceable in the eyes of your existing customers and your prospects,” she said. “That starts with positioning. By identifying precisely the criteria that comprises your ideal clients and customers, where you add the most value to their lives or businesses, and how you can run efficiently to garner a higher profit margin, you’ll secure a place within their budget while commoditized vendors will be the first to be cut as dollars are squeezed. Customers will always try to find cheaper replacements if and when a recession hits. The more valuable your offering is and the higher the quality of your customer service, the less likely it will be that you’ll lose a significant number of accounts.”
In the real estate world, making sure tenants will not be lured away in a recession also requires advance planning.
“If there are three years left on a lease, you may want to offer the tenant an inducement about extending it by five more years,” suggested Jeffrey Dunne, vice chairman at CBRE in Stamford. “This would preempt the competition from stealing the tenants away.”
For Amenda, staying connected with like-minded business professionals ahead of possible bad times will help provide a buffer against the depths of the downturn.
“Keep your business network strong,” he advised. “Talk to other business owners in your industry about how they plan to survive when a recession occurs. Recessions affect business industries very differently. You will be surprised to hear that many have no thought about a recession and planning what they will do to survive. Business owners can use each other as sounding boards and brainstorm to come up with some great ideas on how to survive.”