Believe it or not, coming out of an economic downturn is about much more than just cutting costs, so here are some considerations for your business in relation to automating technologies and reducing manual work. Replacing manual processes with digital technologies enables businesses to be flexible and agile in a changing environment.

Saying Australia might be headed towards a recession might sound counterintuitive, with the country’s recent record of low unemployment rates and increased consumer spending. But with U.S economists all but certain that a recession will hit them in the next few months, it’s time for us to start thinking and preparing for a possible economic downturn. 

Is a recession coming? 

A recession is characterised by slower economic growth periods, lower spending and investment levels, and a possible rise in unemployment. In this article, we use the term recession to mean a period of economic downturn.

The IMF and World Bank have warned the public of a global recession, and Australia has recorded its first recession in over 30 years during the pandemic. The good news is while the pandemic has caused periods of slow growth, the reduction in economic activity was less severe than anticipated. 

To curb a severe recession in the future, the RBA has increased interest rates from 0.35% to 2.85% in just six months, with warnings for future interest rate hikes. Plus, it was highlighted that Australia’s economy would be ‘pretty rocky’ in the next 12 months. 

Customer confidence is also gloomy, with general Australians feeling less confident in the economy now than in 2020 - when vaccines were yet to be developed. 

While it’s difficult to judge the severity of an economic downturn, how businesses prepare for it is still the same. With thorough planning for the months ahead, companies can escape and even thrive from a recession.

Here are some considerations in a likely recession. 

Look at current financial conditions 

By taking stock of one’s current assets, liabilities, and expenses, businesses can understand their cash burn rate and see how long they would last without any revenue generated. Understanding a business's current cash flow is crucial to reduce any leakages (i.e. staff overspending, time loss) and improve cash flow. 

Businesses analysing their financial conditions can also ask themselves the following questions: 

• How easy will it be to raise and borrow money if necessary? 
• How impacted is my business by rising interest rates? 
• Are my customers price-sensitive enough to be affected by a higher cost of living? 
• Am I thinking strategically about how my people drive my business performance and profitability? 

Businesses should identify the key drivers and detractors of their financial position, allowing them to proceed with the following steps.

Cut costs smartly 

While it may be tempting to reduce team-building activities and coffee meetings, it isn’t going to bring significant changes to company costs. And if your business is considering layoffs during an economic downturn - think again. Research shows that the remaining employees who survive layoffs in a company experience a 20% decline in job performance. 

Companies not only lose employee morale during layoffs and cost cutting, but they also experience an indirect monetary and time loss from training employees. So instead of looking at traditional cost cutting measures, think of operational changes that can help the company reduce manual and repetitive tasks and increase employee productivity. 

Stay agile and flexible 

While not ideal, the recession provides an opportunity for companies to re-evaluate their business model and make necessary changes to adapt. Decentralised and lean firms can better adapt to changing economic conditions, and that’s where businesses want to be. 

During the Great Depression, studies have shown that short-time (otherwise known as casual) work saved businesses many revenue dollars. Additionally, companies that relied less on layoffs and more on operational improvements recorded healthier post-crisis revenues. So planning for a flexible, decentralised workplace where employees can be more autonomous is an excellent way to weather any economic shocks. 

Invest in automation 

Companies that prioritise automation by investing in technologies are more transparent and efficient during a recession. Replacing manual processes with digital technologies enables businesses to be flexible and agile in a changing environment. 

For example, companies that previously used petty cash and reimbursements had saved money spent on hiring a full-time administrator when they switched to Budgetly’s prepaid corporate cards. Additionally, their process has recorded significant operational savings by up to 40 hours a month. 

In conclusion, surviving a recession involves looking at your organisation's strengths and making strategic cost-cutting initiatives through automation. If your business is considering automating its expense management process, Budgetly provides Aussie businesses with a great alternative to credit cards and staff reimbursements. 

To learn more about Budgetly and our expense management platform, download our eBook, Managing Expenses with Budgetly. Alternatively, schedule a demo with us today to find out how we help businesses make expense management easier.