Recession? What recession?

Balancing the desire to grow amid fears of economic downturn
Sarah-Jayne Martin

Over the past year there’s been one word on everyone’s lips – recession. But up until recently, this impending economic downturn hasn’t been quite as dramatic as expected. While the UK has just entered a recession, the Bank of England has said that it might be over before we know it as there are now “distinct signs of an upturn”.

The constant change in interest rates and ongoing economic uncertainty are understandably causing a lot of indecision for businesses and how they should approach growth. No one really knows how this recession might impact UK businesses, and some may not see a difference at all. With so much uncertainty, how can organisations plan for a recession without staying stagnant? The key is cashflow management.

Failing to prepare is preparing to fail

UK businesses and consumers have experienced a rollercoaster of economic highs and lows over the past year – with growth accelerating towards the end of 2023 despite interest rates hitting a 15 year high. In response to these fluctuations, businesses have understandably been cautious in their spending and investment. Research found that 76% of businesses are missing business transformation targets, with 67% scaling their plans back as a direct result of macro-instability. This is compounded by further drops in hiring activity at the start of 2024.

Businesses are unsure of what the best play is – heed the economic warnings and cut costs but risk falling behind competitors if the economy doesn’t get worse, or invest now but pay a serious price if a recession does hit hard. All businesses can do in reality is prepare for the worst and hope for the best. To do so, organisations need to ensure that their finance department is equipped to predict cashflow and forecast for any eventuality. Business leaders can’t expect to weather a recession, let alone take advantage of opportunities when they come if they don’t have a transformed finance function.

To grow or not to grow, that is the question

An important aspect of not only preparing for but surviving a recession, is understanding scope for growth. Some business leaders are starting to stretch their legs and look at how they can invest capital that has built up from being cautious. Savvy leaders are even exploring how they can take advantage of a risk-adverse market and pull ahead with innovation.

It will be fantastic to see businesses once again spending on transformation and innovation, but some level of caution is still required. Organisations need to identify priority areas for transformation and growth, but importantly they must accurately understand how that spend will impact cashflow over the next year and beyond. While businesses shouldn’t stay static, they cannot go full steam ahead into spending. They need to know exactly how different scenarios could impact their cashflow and bottom line.

However, organisations will not produce any meaningful data or insights by just digitising basic financial processes, such as emailing invoices rather than printing them. Intelligent automation and AI are essential for predicting how cashflow could change depending on different forms of investment and the fluctuating economy. For example, finance leaders can track customer payment behaviours and ensure that investments are timed when they know customers will actually pay invoices, rather than when the payment period is. This will help mitigate the impact of late payments. Businesses can also more accurately assess who to give credit to by using predictive analytics. Lending credit is a great way to increase cashflow and capitalise on economic downturn, but its also a risky business. Analytics insights clearly illustrate which customers will be a safe bet and those that should be avoided.

Without AI and predictive analytics, businesses won’t be able to assess their opportunities for growth and may not be able to survive a recession, let alone thrive in one.

Futureproofing the business

Despite the news that the UK is now entering a recession, there are still a lot of unknowns about the real-world impact on businesses. One thing is clear, organisations cannot sit still in such a demanding and competitive environment. But it’s not time to throw caution to the wind, and so businesses need to view the finance team as the sharpest tool in the box for preparing for a recession and for coming out of the other side. Finance leaders can help the wider business to achieve growth goals in a sustainable way. Now is the time to futureproof the business, no matter what the economy may throw at it next

Written by
Sarah-Jayne Martin
Written by
April 24, 2024