Pandemics and wars have affected productivity and the global economy is heading for a downturn. At least, that is what analysts are predicting. The general consensus from the Global Economic Outlook session held at Davos 2022 indicated that global growth is slowing down. As a result, most people are concerned. However, instead of worrying, Adam Clarke Macropay founder and CEO shares tips on how you can prepare.
An economic downturn or recession is usually identified by a fall in GDP over two consecutive quarters. Before, the war in Ukraine, the world was finally starting to recover from the economic downturn caused by the COVID-19 pandemic. Now with increasing supply chain challenges, fuel price hikes and rising inflation, the economic outlook has taken a dark turn. Although it is yet unclear just how dark things will get, here are some things you can do now to prepare.
Stay calm
Adam Clarke recommends remembering that a downturn is part of the normal economic cycle. For example, after periods of rapid expansion, the market always moves to correct itself. In such situations, the most important is to keep calm. Cycles follow predictable phases that do not last forever.
As a successful entrepreneur, Adam Clarke understands the importance of “worst-case scenario” preparedness. After all, he started Macropay in a living in 2013. Since then, the fintech startup has grown into a multi-million euro enterprise with a global presence. One of the things that helped the entrepreneur succeed is his ability to identify trends and find solutions to problems that do not exist yet. This skill helped him become the leading salesman, surpassing over 200 co-workers, in his first job after dropping out of high school at 16.
Conduct a financial analysis
To weather an economic downturn, it is important to be financially prepared. To do this, you need a clear understanding of your financial position. Identify your priorities such as maintaining your cash flow. Restructure your fixed expenses where possible. You can also create financial models to predict the possible outcome if things stay the same, or if the economy declines by 20-30%. Also, consider the worst-case scenario, would your business survive if your cash flow falls below 70%? In what ways can you reduce expenditure if the worst happens? Remember, by failing to prepare you are preparing to fail.
Build your reserves
Before things turn bad or worse, find ways to build your cash reserves. Economic downturns create opportunities for those prepared to leverage them. For instance, real estate and other assets are more affordable during an economic downturn. Cash reserves will enable you to take advantage of these opportunities if they arise. At the same time, look for ways to manage your debt. This is because interest rates tend to rise during an economic downturn. Avoid getting a loan during the downturn as it may be either expensive or impossible.
Be patient
For most things, timing is everything. Identify opportunities and areas of growth and then wait for an opportune time, instead of making big purchases or drastic changes now. As previously stated, economic downturns create opportunities. This can be making major purchases at lower prices or being strategically positioned to meet an unforeseen market need and increasing your cash flow.
Conclusion
History has proven that fortune favours the prepared. Thus, do not be caught unaware. Analyse your business to better understand your strengths, weaknesses, opportunities, and threats. Find ways to hedge against the weaknesses and threats while preparing to leverage your strengths and opportunities. Remember, an economic downturn is just another part of the natural economic cycle.
