A recession is inevitable for any economy that faces an immense decline. This fact can be scary for people who have experienced it before, and those who haven’t.
What is a recession?
Put simply, a recession occurs when the economy shrinks in the gross domestic product (GDP) for two consecutive quarters. It brings with it fear, uncertainty and extreme conditions of poverty for the country’s citizens. And, although we know that recession is bound to happen – anywhere in the world – we never really know when it will take place, how severe the conditions will become or how long it will last.
This opens the door for a myriad of speculations to being formed and perpetuated, causing chaos in their wake. As governments continue to fight the current pandemic caused by the coronavirus, also known as COVID-19, fears of the global recession are intensifying.
Many experts are expressing uneasiness about the severity of the impact of the coronavirus on the global economy. Unfortunately, the recession in South Africa is already in full swing. This happened after the gross domestic product (GDP) declined by 1.4 percent in the last quarter of 2019, according to Statistics South Africa (StatsSA). The question about whether the coronavirus will deepen the recession hole for South Africa remains an answered one. Experts warn that it is a futile exercise to try to do the guesswork.
But it doesn’t mean that you should sit back and wait for a deeper plunge. While it might seem all too late, it isn’t; you can still prepare yourself the best way you can. Below we’ve compiled a list of tips on how you can prepare your business for a recession.
Reassess and rework your business goals
This new reality calls for a big reflection and assessment of all of your short-term and long term business goals. Consider what the change means for your business’s finances, and rearrange your goals to fit the new circumstances. For example, if you were planning to buy new equipment, it would be wiser to relook at this goal. If you were looking to buy any of the equipment because you simply wanted to upgrade, then postponing it for later – when things have become better – might not be a bad idea. In essence, look into your business wants and needs, and rearrange them according to what your business needs right now.
Create a business essentials budget
Budgeting is important even under normal circumstances, but it is even more important now during these difficult circumstances. Your company’s accountant needs to reassess and rearrange the business’s budget to fit in only essentials, as we’re only allowed to purchase essentials. That refers to food, toiletry, medical and health-related items, but also items that help run a business efficiently such as laptops. There are also several online business budgeting tools available in South Africa to help with managing your business budget better.
These tools can be a healthy addition to the balance sheet you normally use. It can help you with your business’s financial planning and give you an overview of your business account(s), investments and history of transactions.
Build up business savings
If your business is in a position to continue building up savings, do that. If you have not started a savings account, perhaps it’s time you start to fix that and open one. Asking any business to save their money during these tough times can sound ridiculous, but every little bit helps. You will need the money for unplanned expenses or business emergencies. You will also need savings for future projects that might become a valuable addition to your business, or kick-start old ones that you might have put on hold due to financial implications.
Pay your debts
Again, if you’re in a position to continue paying off your business’s debts, do not pause any of these payments. The more you hold off on paying, the more the interest rates will soar. It’s possible that by the time you start paying again, you’ll be overwhelmed. Paying off your debts will also give you peace of mind; should things get worse or should company take a knock, you’ll feel at ease knowing that you’re not too behind with your debt payments. Even If you’re secure about the future of your company, you still need to continue to pay your debts as it impacts on your company’s credit health.
Apply for financial relief
We just told you to pay your debts, but now we’re talking about taking on new debts, why? Well, business is in a complicated situation, and the state of affairs is not exactly the same for everyone. If your business is managing financially, it makes sense to steer clear of a new financial obligation, but for some businesses, financial relief is the only option they have.
For example, small businesses have either permanently or temporarily shut down, and some are working remotely. Some of these active businesses have had to cut down money spending to focus on priority areas. And, while the government has offered some relief to these groups of small businesses, there’s still a huge demand for financial relief. This is where corporate finance comes to the rescue. Corporate finance deals with providing money to businesses. What’s important here is to assess your risk appetite and tolerance. You can have a conversation with an expert who can guide you through this process and help you find out if you qualify for corporate finance, as well as where to apply for corporate finance.
Some things in life are within your control, and a recession is not. A country can work collectively to boost up the economy to try and avoid recession. However, it’s inevitable and can take place at any moment, should a country’s economy take a slump in two quarters consecutively. The best thing to do is to shift focus on things that are within your control. The above financial tips can help you take control and weather the storm as the fight continues.