Australia has gone 27 years without going into recession. That record-breaking period will, according to experts, end in 2020. Historic natural disasters, followed immediately by the coronavirus pandemic, have thrown global supply chains into chaos, disrupted travel, and brought down consumer confidence.
Countries in which the pandemic has spread, so far, have suffered serious economic slowdowns, as consumers stay home to avoid contact with the public. The Australian economy has, according to experts, likely already contracted in the first quarter of 2020. Looking forward, growth in the second quarter is looking it will flatten. The first community transmission of coronavirus was documented in NSW in the first week of March, strongly suggesting that the country will soon face the direct, as well as the indirect impacts of the pandemic.
In order to succeed in a stagnant or contracting economy, business leaders need to take steps to recession-proof their operations. That means getting control of their cash flow, learning to drive growth through market consolidation, and innovating to expand into new markets.
Stabilise cash flow
Cash flow interruptions are common for all kinds of businesses, even when the economy is growing. During a recession, budget shortfalls and other kinds of interruptions only become more common, making it difficult for unprepared businesses to focus on anything other than their short term financial difficulties. To avoid this, businesses need to familiarise themselves with the tools that are available to them to quickly and easily manage these kinds of issues, so that leaders can focus on the bigger picture.
When businesses quickly need additional cash to cover costs, they turn to invoice finance. It allows businesses to access funds in a matter of hours, by exchanging an outstanding invoice for cash. The financial institution receiving the invoice pays out most of its value up front, and then collects payment from the client. Once the payment is received, the remaining balance is paid out, less their fee.
Supply chain finance
Another way to boost liquidity is to extend payment terms with supply chain finance. Here, the business works with a financial institution to offer payment to suppliers on their behalf. Their own supply payments—now due to the financial institution—can then be deferred by up to 90 days after the invoicing date. This allows businesses to redirect their existing working capital for other uses, or allows them to make supply purchases when they don’t have sufficient capital on hand.
Boost competitiveness within your industry
When the economy is growing and consumers are spending more than the year before, businesses don’t necessarily need to win customers over from competitors in order to grow. During a recession, consumer spending is going down, so growth needs to come at the direct expense of a competitor. This means that, when facing tough times, businesses need to focus on their competitiveness within their industries, and look for ways to consolidate more of the market. This means streamlining operations to keep costs low and to maximise profits. At the same time, though, businesses need to look outside their comfort zone for growth opportunities to pursue. That might mean finding new market segments to access at home, or expanding internationally to reach more customers.
Consider opportunities overseas
All of Australia’s biggest trading partners are experiencing economic slowdowns, with some, such as China, facing a partial lockdown of their economy. This is one of the core reasons why Australia is expected to go into recession. Struggling economies in China, Japan, South Korea, and the US won’t be able to buoy Australian businesses that are facing declining consumer spending at home. This doesn’t mean that they are out of options, though. Businesses can instead look into the possibility of expanding into other international markets, and making use of international labour.
As the global economy slows, manufacturing-focused countries in Asia, Africa, and Southeast Asia will begin to feel the drop in consumer demand, leaving them with a great deal of excess production capacity. This will drive down labour costs in those countries, providing cash strapped businesses with additional options. Not only will it drive down supply costs in general, it may also provide businesses with advantageous outsourcing opportunities. Those businesses who recognise and seize these opportunities first, may gain a critical cost advantage over competitors.
After nearly three decades of growth, many Australian businesses have never experienced a recession. This will inevitably make it difficult for many to adjust, giving more flexible and forward-thinking competitors an edge. By taking control of their cash flow and finding ways to drive growth in a contracting economy, businesses can thrive even as their competitors struggle.