Why Top CFOs Are Preparing for the Next Recession Now

To the average consumer, the U.S. economy may look pretty rosy right now. Is it time to prepare for a recession? As the Wall Street Journal reported in mid-May, industrial production surged in April, unemployment fell to its lowest rate since 2007, consumer spending is up and “existing homes sales are climbing at their fastest pace in a decade.”

If the economy is doing so well, why did Ford Motor Co. replace its CEO and is reportedly planning to cut 10 percent of its global workforce? More important, why should financial executives care about what’s happening at Ford?

Auto manufacturers like Ford operate on a five-year sales cycle, which is much longer than most industries. Economists and top financial executives monitor the actions of automakers, because they serve as a bellwether of economic change.

This insight is critical for financial executives in industries with shorter sales cycles, as it allows them to research and develop proactive strategies and pivot business plans. By planning ahead, companies will be prepared to optimize performance and drive revenue leading to and during a recession.

Organizations have many more options when they act proactively prior to an economic downturn. Ford, unfortunately, is acting reactively, when desperate measures – like replacing a CEO and cutting 10 percent of the workforce – often become necessary.

CFOs: Another market correction is looming – are you prepared?

Today, top financial executives are working proactively to bring solutions to management that will prepare their companies to survive and grow when the next recession hits, and it’s coming. Top economists and financial experts expect a market correction to occur in late 2017 or 2018.

For organizations that wait until 2018 to effect change, it’s going to be too late. Economic experts expect there will be a very fast slide once the dominos fall. The downturn won’t last long – we should be recovering by early 2020 – but times will be ugly once the recession hits.

Consider the 2008 recession for a moment. Many financial experts and executives saw that one coming. However, what they didn’t realize was the depth of deception that existed in the marketplace, how global markets would be affected and the massive amount of debt infused in housing bonds. When the bubble popped, investment firms like Merrill Lynch and Bear Stearns were drowning in debt.

Companies that did see the recession coming escalated/increased M&A activity and/or R&D activity or found some other innovation to set their organizations apart to survive the impending downturn. Similar preparations are occurring today.

To learn what market forces are behind the impending economic downturn, check out this recent post: Innovate, Exit or Die: What Senior Executives Understand About the Economy (That Most Americans Do Not).

It’s your time to shine: CFOs can help the C-suite connect the dots

Financial executives need to look at what’s happening at companies like Ford, then consider what will happen to their organizations if they wait to make adjustments until next year. The big consequence of not preparing a business for recession is layoffs. And many companies will end up letting people go in the next 12 to 18 months, because they weren’t prepared.

Now is the time for CFOs to speak up and speak loudly to leadership:

“I know you want to launch that new business, but the economy is such that I believe there is enough cause for pause.”

Today, financial executives really have the opportunity to demonstrate the value they provide, by helping their companies attain long-term health and facilitating short-term solutions for survival – before the economy goes south.

So what steps can financial executives take now?

CEOs don’t want to hear, “We need to make some changes.” They need to know what options are available and the financial consequences associated with each. Consider the following three steps:

Step 1: Weigh strategic options with the management team.

Look at this as an all-hands-on-deck meeting, where the entire management team reviews all options available and the pros and cons of each.

The team should review what changes can be made within the organization now, to avoid being affected by the recession and forced to make drastic reactionary decisions next year.

• What non-essential expenses can be put on hold?
• Can budgets or salaries be trimmed in any – or all – departments?
• Are there any new products or market segments to go after?
• Can money be moved from one business unit to another business unit that is more recession proof?
• What other minor cuts can be made today to prevent drastic cuts tomorrow?

It’s also important to consider what cuts are NOT viable now. Scaling back on research and innovation can place companies at a competitive disadvantage once the economy rebounds.

You’ll find more tips on how to set up your business for a winning season in this recent post. 

Step 2: Take a deeper dive by performing a risk-benefit analysis.

After the management team narrows down the list of viable options, it’s time for the CFO to assign numbers to those options by calculating the short- and long-term financial costs and gains of each. With that analysis in hand, the CFO has the financial insight he or she needs to develop a plan that will position the company for short- and long-term success.

Step 3: Confidently present the financial plan to leadership.

While CEOs drive most high-level discussions, in these preemptive times, CFOs need to speak up. CEOs will listen when CFOs:

• Cut to the chase: “There is going to be a market correction and there will be consequences if we don’t take preemptive measures now. But we do have options, so we don’t need to hold back.”
• Present a clear solution backed by numbers: The risk-benefit analysis makes it easy for CEOs to weigh options, scrutinize the numbers and sign off on a new financial plan.
• Set the wheels in motion. Once the new strategy is approved, leadership can communicate the changes to all departments, so they can make necessary adjustments.

If lead generation is integral to your new direction – contact us

Depending on the results of your financial analysis, the lead generation experts at Promote On Purpose may be able to help you make up time, reposition your brand for a new market and effectuate change. Plus, we guarantee results, which can help mitigate the risk of your lead generation efforts.

To learn more about the Promote On Purpose Performance Guarantee and how to prepare your brand to survive the next recession, give us a call at 844.808.3246. You can also connect with us via the handy online form on our contact page.