How to Surviving a Recession and Thriving Afterwards?
The world has gone through various recessions that have claimed countless companies. A recession is defined as “two consecutive quarters of negative economic growth” which results in sharp declines in demand and revenues. Historically, it has been caused by war, financial panic, spikes in oil prices or other economic shocks. The next recession as of 2020 will likely be caused by the COVID-19 pandemic.
However, despite a recession’s negative effect on a large number of companies, research has shown that a small percentage of companies not only recover three years after a recession ended, but also flourished. Research done by Bain used data from the Great Recession and found that top 10% of companies in the study experienced a steady climb in revenues after the recession and seemingly thrived after it.
Ways to Survive (and Even Thrive) After a Recession
The first key aspect that successful companies showed was preparation. Making business continuity and contingency plans are crucial to providing a long-term strategy to deal with times during the recession and after it.
Since a recession causes lower sales, efficient financial management is necessary to ensure that a company is able to fund operations and absorb losses incurred during the downturn. Companies that had previously been weak in financial management, including those that have racked up high levels of debt, were particularly vulnerable. It has been advised that companies deleverage or reduce debt levels if a recession is soon to come.
Studies have also shown that companies with decentralized organization structures were able to adapt better during recessions. This is mostly due to their flexibility to adapt to changing conditions while avoiding the trap of excessive decision-making and over-reliance on top management.
Another important aspect to consider, especially as our world becomes increasingly connected online, is whether the company has succeeded in maintaining a digital and technological edge to survive a recession. Research has shown that companies were more likely to invest in digitalisation and improving their IT departments after a recession.
This is because digital and technological investments helped greatly in making companies more agile and connected with each other to help deal with rapid uncertainty. Furthermore, tapping into online solutions to understand and better reach consumers could make or break certain industries such as retail, food and beverage, and more.
Despite the serious negative effects of a recession, it provides valuable lessons and opportunities for companies to change and improve drastically after surviving the challenges imposed. It provides make-or-break situations that help determine which companies survive to become even more successful and thrive while providing valuable data to better prepare for future scenarios.
Although it is unfortunate that recessions cannot be avoided, we can make the best out of it with proper preparation.