How to Leverage FP&A to Prepare for/Manage Through a Recession

We’ve all read conflicting headlines: Will there be a recession in 2024? Will we avoid recession? Are we in a recession now? It’s no secret that the moves to curb inflation the Fed has made continue to serve as topics for discussion, the economy is slowing, and it’s likely there is some form of economic volatility on the horizon. Now is a great time to focus on your company’s growth and what can you do now to position your company to weather a recession or downturn.

Financial Planning Best Practices

Here are a few best practices to help reduce the negative impact of any economic turmoil, and position you to emerge intact.

  1. Ensure that you have the right Financial KPIs in place. For example, customer KPIs to track things like retention, revenue/profitability by customer, close rate, etc. Also, KPIs fixed costs vs. variable costs. Finally, where applicable, KPIs for inventory management. We’ve purposely kept this KPI list to financial measures. That doesn’t mean that KPIs for Operations, Sales or Marketing should be ignored.
  2. Strengthen your relationships with banks/financial institutions and make sure to have a good handle on lines of credit and equity to leverage when there is a need to tap into these resources.
  3. Engage in scenario planning to gain a reality check on your starting position. Now is the time to assess how you stack up vs. competitors in both market position and financial strength. This analysis provides insight into how you’ll approach a downturn – going on the offensive or taking a defensive posture. Scenario planning requires a visioning of various futures and clearly building a path outlining steps/decisions for each option.
  4. Establish cash management best practices. Your ability to track supply chain, procurement and commercial decisions’ impacts on working capital and cash flow give you an advantage in managing cash flow. Dig into Accounts Payable and Accounts Receivable to understand each position and build in tracking and management processes for each if they don’t currently exist.
  5. Solidify pricing and portfolio management . Once you have a handle on your current cash position and potential scenarios from points 3 and 4, look at your product/service/brand portfolio. Inflation caused most companies to raise prices already, but that course of action has probably topped out for most. Do review your product/service lines with an eye to cut or reduce spend on any underperformers, migrating customers to higher margin products. Consider surgically increasing prices on higher margin items without going too far and potentially turning off customers. Value-added guarantees, bundling products, adding service offers are tactics that may also be used to retain or jumpstart sales, if needed.
  6. Prioritize investments in automation & technology – Automation equals the type of efficiency that makes companies resilient during a downturn. It also creates a repurposing of human resources to more critical areas, and reduces costs. Broader capital planning along the lines of planning for investments in plants/manufacturing, large purchases, etc. should be considered now as well. For example, investing in customer relationship management technology to improve loyalty with current customers, and attract new ones is a timely action that will pay dividends during and post-recession.
  7. M&A. Times of economic turmoil are opportunities for growth – study your competition to find your true points of differentiation, and who matches up well with your long term goals. Consider acquisition as a way to recover in an even stronger position post-recession. For other companies, a pending recession or uncertain economic environment might be an opportunity to sell the business. With a strong Finance team as your partner, you can position your business for a sale/acquisition to bring the optimal value.

Overall, surviving and growing during an uncertain economy is about having a strong finance function (people/processes/technology) that can give business owners/leaders confidence, guidance, and support to help handle the situation the business is facing, and then chart the appropriate course of action. That’s true for any business, but without that in a recessionary environment, it’s like trying to sail a ship through a hurricane with no crew, no mast, and no compass!

FP&A Leadership

If you don’t have the FP&A leadership required to address these points, consider bringing on fractional resources to assist or supplement the internal team. The right professionals have experience in the areas outlined in this article, know how to quickly assess your specific needs and confidently put the right plans and processes in place for your company.

Growth Operators brings the FP&A talent and expertise to weather this storm. We’re true operators who have sailed through rough seas and can anticipate and plan for your success. We not only help you strategize, but we also do the actual work alongside your team, ensuring sustainable processes and plans are in place. We are trusted by more than 20 Private Equity/ Venture Capital sponsors who partner with us to help their portfolio companies grow. To learn more about how we might help your company, set up a complimentary call with us. We’ll help you navigate through any future storms.