Economic downturns are inevitable. The second the storm clouds roll in, most businesses start cutting expenses. While this is an understandable response, reactionary cost cutting initiatives can often be aggressive and leave organizations in even more financial trouble.
That’s because reactive cost reduction is rarely strategic. During hard times, business leaders aren’t going to spend the time digging into invoices and service contracts to find innovative ways to cut operational spend. They’re likely going to go for what’s most obvious and immediate, rather than consider what’s sustainable or beneficial in the long-term.
While there are certainly smart ways to cut costs quickly when the unexpected happens, recessions don’t typically happen out of the blue.
Watch for Warning Signs
You may have heard that the unemployment rate dropped to 3.7 percent at the end of 2018. That’s a 17-year low.
History warns that recessions are often fairly quick to follow a stint of full employment in the U.S. In fact, for the last 70 years, the average time between an unemployment low and the start of a recession has been a mere four months.
Now, the unemployment rate alone isn’t enough to suggest it’s quite time to batten down the hatches. But it’s also not the only cloud in the sky.
A mix of factors have two-thirds of economic experts from the National Association for Business Economics expecting a recession within the next two years.
Unfortunately, many companies won’t survive the next recession, whenever it may be. This is due to one crucial fact: these businesses run out of capital.
The best thing any business can do to get ahead of an economic downturn is to get proactive about cutting operational spend. Strategic expense reduction can boost your margins and protect the lifeblood of your company: your cash flow.
In part 2 of this article, we’ll share a few of our best tips for getting started on recession-proofing your business. Interested in getting started now? You have nothing to lose by giving the experts at Silverback a call today.