The biggest economies have stalled, leading many to forecast a gloomy financial outlook. Yet governments and experts insist that a recession has not yet arrived. Even though stock market indices, real estate prices, and the demand for goods continue to fall, the National Bureau of Economic Research (NBER) Business Cycle Dating Committee remains silent.
It begs the question: are we in a recession? And if so, what should you do to prepare for the coming slowdown?
How to Identify a Recession
The NBER is the national recession scorekeeper. It labels a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Many variables determine economic activity, but the NBER cites job market numbers, consumer spending, and production output as primary metrics.
On the other hand, many economists believe that two quarters of negative gross domestic product data is the true definition of a recession. And Wall Street includes bear markets as a clear signal (when market-wide prices fall over 20% from previous all-time highs). With such disagreements amongst experts, it is easy to confuse whether or not we are in a recession.
Regardless of the official scorekeeping, almost all of the recession signals listed above have occurred in 2022. We know business owners and entrepreneurs are facing choppy economic conditions.
How to Prepare for a Recession
Knowing that the economic forecast appears gloomy, preparation allows you to weather the storm. Use the following steps to recession-proof your organization:
- Shore up cash reserves: A recession often reduces demand, leading to minimal cash flow. Slowdowns also put pressure on prices as it gets harder to source capital. It is a good idea to stock up on cash reserves for emergency payments and to take advantage of good buying opportunities.
- Lower your debt levels: Interest rates will rise with inflation, and bad debt can stretch your resources as the downturn worsens. Deleverage when possible, so you have some room to handle the pullback (those with the highest debt levels are often first to liquidate).
- Trim the budget: Now is not the time for risky investments (e.g., new machinery, labor expansion, or research and development). If revenues fall, risk should take a backseat so that the health of the entire business stays strong.
- Communicate with all stakeholders: In a recession, everyone feels the squeeze. Talk to suppliers and employees so all stakeholders can manage the changing conditions. Keeping a business afloat takes a village, so don’t hesitate to talk to expert partners who can help you through the slowdown.
Get Help for the Upcoming Recession
Recessions are a normal part of the business cycle. Economic downturns may slow the pace of business, but with the right partner, you can manage the new financial conditions for long-term success. Reach out to ABCO Group if you need support. We provide business expertise, resources, and financing to partner companies and startups across all stages of business growth, change, and development.
Contact ABCO Group today for more information on how we can help you prepare for today’s recession climate.