Planning for 2020 is well underway, and for many business leaders, that planning process is looking significantly more complicated than in recent years. The primary reason why is the ominous storm cloud of a pending recession that seems to get darker by the day. While no one truly knows when a recession will hit or how long it will last, too many business leaders are forging ahead with their 2020 planning with just a wait-and-see approach to the inevitable recession to come. Not a good plan.
As an executive coach, I work with numerous CEOs and their leadership teams who are wringing their hands about what’s to come, yet feel paralyzed about what to do. What I tell them is this: first, you are not alone. Not by a long shot. Every executive is dealing with this. More importantly, the inevitable recession to come is not something simply to brace for and endure. Rather, it is something to prepare for and capitalize on, and that starts with 2020 planning.
Where to begin?
It comes down to a handful of powerful, yet relatively simple, planning actions that business leaders should take to not only weather the storm to come, but emerge on the other end with an even stronger market position. Best of all, these actions will continue to benefit a company long after the storm clouds of recession have passed.
Know your cash conversion cycle
As the old adage says, “Cash is king.” Conserving and carefully managing an organization’s cash is vitally important in preparing for a recession. Adequate cash can allow an organization to withstand the volatility and slow periods that are likely to come.
Action step: As part of your 2020 planning, take a close look at your cash conversion cycle (CCC), a metric that looks at the time it takes from paying suppliers for materials or inventory to collecting the cash from the sale of goods produced. The CCC is a critical liquidity measure that helps business leaders better manage their cash and make proactive decisions with cash reserves.
Focus on what matters
CEOs and their leadership teams are often weighed down by hundreds of issues that they believe demand their immediate attention, and that chaos only intensifies during planning season. It’s overwhelming to say the least and can take the focus away from what really matters – developing a truly strategic plan for 2020. Too often, that chaotic swirl leads to purely emotional and political decision-making. That benefits no one. The question is: how do you hone your focus to those issues that are truly most important?
Action step: Utilize the “Power of One” tool to target and analyze the 7 key drivers that have the greatest impact on your profitability and cash flow. Alan Miltz, an international financial thought leader and co-author of “Scaling Up”, created this one-page tool that looks at what the profitability and cash flow outcome would be from making small, incremental changes to a business’ 7 key drivers. After using the Power of One Tool, ask yourself, “How would my cash flow and profit improve if I implemented these changes?” Even small changes to price, volume, cost of goods, days receivable, days payable, inventory turns or overhead expense can produce enormous results. Incorporate these changes into your 2020 plans before the recession hits while suppliers and customers are more agreeable to these changes.
Conduct a SWOT analysis – not for you, but for your distribution channel partners
Many organizations have long conducted SWOT (strengths, weaknesses, opportunities, threats) analysis as part of their annual planning processes. These are all well and good, but with a recession on the horizon, with likely impacts to suppliers and business partners up and down your distribution chain, that annual SWOT analysis needs to be extended beyond a business’ own walls.
Action step: Conduct a robust SWOT analysis (focusing primarily on the opportunities and threats) on each of your key distribution channel partners to ensure they are equipped to weather the coming recession without adverse impacts on your ability to do business and serve your customers. How are they likely to fare? Based on your observations, what strategies are they most likely to undertake? Is now the time to make some changes? Be brutally honest and make any necessary adjustments as part of your 2020 planning to mitigate any negative impact when the recession does arrive.
Incorporating these three steps into your 2020 planning can deliver meaningful results – and more importantly – best prepare your organization for the recession to come and beyond. If you’d like to discuss how your business can build these steps into your planning, please contact me at firstname.lastname@example.org or 612-701-8181.