How CFOs Can Start Preparing Now for the Possibility of a Recession

June 12, 2019

It’s been more than 10 years since the country experienced its most recent recession. The economy has been improving slowly and steadily since its worst days in 2008, bolstering the confidence of both consumers and businesspeople.

But is there trouble ahead? Many people think so, based on several factors such as:

  • Trade tensions between the U.S. and China
  • Uncertainty in the direction of interest rates and recent yield curve inversions—an inversion in the yield curve historically signals a recession over the horizon
  • A steady rise in the debt-to-GDP ratio because of the rapidly-increasing national debt
  • Hangover effect from the government tax cuts

CFOs Should Prepare

No one can say for sure if or when the U.S. may experience another recession, of course. But as a CFO, you’d be wise to begin preparations now. Some of the actions we recommend are simply good fiscal policy that would be appropriate at times even in a robust economy. Others are defensive moves, designed to make your company more likely to come out of a recession still strong. Their effectiveness will depend on many factors, including the length of the downturn and the industry your business serves.

Moves to Consider

It’s easier to make recommendations when we know more about your company’s structure, goals, current health, etc. For that reason, we suggest you schedule a consultation with us to start planning for a possible downturn. We can tailor our proposals to fit.

Here are some ideas to consider in the meantime:

Limit discretionary spending. You’ve probably had occasion to do this before when money was tight. Can you find alternatives to travel, for example? Do you really need the new equipment you had planned to buy or can it wait?

Evaluate your personnel costs. Have you been anticipating new hires? Now may not be the best time for that kind of growth. If you absolutely must have more staff, look at the possibility of hiring independent contractors rather than full-time employees. At the same time, you should do a serious assessment of your staff vs. your current and projected workload. Do you need to reduce your headcount?

Develop and implement smart plans for your receivables and payables. We can definitely help you here. There are methods you can employ that will result in optimal inflows and outflows.

Ensure access to cash. What do you think will happen if we actually do start to experience a recession? Businesses will run to the banks for assistance like new or increased lines of credit. If you set up such tools now, and resist the temptation to use them unnecessarily, you’ll avoid the inevitable rush.

Ramp up your tax planning. This is another area where we can provide tremendous support for you, starting now. Minimizing your tax obligation is a process best done year-round, way before it’s time to prepare your return. We can also analyze your financials to gauge your overall readiness for softer times economically. Contact us soon, and we’ll jump-start your preparation for the recession that may come next year.

Let’s Get Started