In case coronavirus variants aren't scary enough, now the word "recession" is popping into the headlines — even outside the business pages. Click to read, or do a a quick internet search about recessions, and you'll see alarming red arrows pointing downward, cartoonishly dancing across charts and graphs. Feeling a sense of panic, doom or gloom scrolling through these illustrations is forgivable.
So what exactly is a recession? Technically, the last recession Down Under was in 1991-92. This economic condition is defined by two consecutive quarters of negative growth in real gross domestic product (GDP), according to the Reserve Bank of Australia. Real GDP is a measure of the value of all goods and services produced in the country. Economists and policy makers love to debate this definition, though. There are many ways to think about and measure economic contractions. These include:
- Unemployment: Job losses typically rise during a recession.
- Spending: Understandably, household spending goes down.
- Loan payments: Individuals and businesses which are struggling may not be able to keep up with payments.
- Investment: Businesses often reduce levels of investment.
There is no formal agreement on when a recession becomes a depression. No matter what measuring stick is used, though, a sustained economic downturn is concerning for your business.
Batten down the hatches
The best time to buy an umbrella is before the rainfall begins. Likewise, today is the best time to revisit your business plan. What is the state of your business today? Make sure you fully understand all existing financial obligations and priorities. This is also a great time to revisit your future projections, as some adjustment may be necessary.
In any crisis there are opportunities. Consider what your business would have done had you known about the global pandemic six months before COVID-19 sparked lock downs around the world. What if you could've seen it coming? With that in mind, look for ways to mitigate risks and maximise opportunities.
It's also a good moment to consider building in emergency plans such as alternative supply chains or manufacturing mechanisms. What will you do if a key supplier or vendor goes out of business? It's never too soon to query potential backups.
Visit your accountant
There are many considerations business owners must address to survive a national recession. It will impact us all — much like the coronavirus — whether we are in Geelong or Melbourne. Understanding the implications of a recession is crucial to identifying and making the most of any opportunities and ensuring the sustained success of your business.
Don't let the scary red arrows drive you into analysis paralysis. Our team can help you plan for a recession. Please book an appointment with WMC Accounting today.