Business in volatile times

Do you have a plan B for a recession? Is the level of preparation where it should be?

In the current situation, companies and their executives need to anticipate now for what might lie ahead. Previous recessions have shown that well-prepared companies are more resilient and come through tougher times in better shape.

The next recession will be unlikely to follow the same pattern as in the past. Management need to be aware that the economic landscape, geopolitical dynamics and consumer attitudes and behaviours have changed substantially since the previous recession; and measures that have been used in the past in response to a downturn may not work as well next time around. Companies will need to be proactive in their response to developments, and senior executives need to assemble a team that can implement changes rapidly.

There are several strategic measures for responding to the threat of recession:

1. Launch of cost reduction programs with the view to take structural costs out of the business and increase productivity.
2. Adopt advanced technologies e.g. manufacturing 4.0, digitalisation etc. to drive efficiencies.
3. Strategic M&A to support the delivery of the future strategy – through divestments, reshape the overall portfolio, carve-out non core units and exit certain markets, acquisitions to complement the portfolio and consider disruptive M&A.
   

Preparing for a downturn in advance, rather than reacting during a difficult time, will allow you to maintain or reinforce your competitive advantages (see chart below). While the specifics and details are important, they should not be a roadblock to management working efficiently to make decisions about how to thrive even in a downturn. Make your organisation directionally right – quickly – rather than precisely right but too late.

Is a refinancing coming up on the horizon?

Conditions in financial markets and credit markets are likely to remain volatile in 2020. Investors have shifted funds to more conservative assets with gold being up by more than 10 percent in 2019.

• Development of several financial scenarios including stress-testing covenants
• Optimising / Restructuring of the balance sheet 
• And exploring new sources of capital through specialised debt funds, private debt and supply chain finance
  

Managing the challenges: the Deloitte approach

In responding to the challenges of a downturn, difficult decisions and choices across the board will have to be made. There may be a lack of clarity about options for the way forward, and inevitably much time and attention will be taken up with short term responses and firefighting. There may also be increasing pressures from discontented stakeholders, with activist shareholders gaining influence for example.

In these volatile times companies may benefit from independent advice and support, to provide a holistic view of the situation they are facing, and to consider a full range of options for dealing with the challenges that exist, making crucial decisions, and implementing them rapidly.

Deloitte is a leader in this area, able to advise our clients on specific topics: