Many businesses and industries are looking at economic forecasts for the United States forlate 2022 and early 2023 wearing “recession-ready” glasses. If yours is one of them, it’s important to ensure that you have confidence in your risk management processes to ease the burden of keeping up with economic challenges.
A recession risk management plan means you can do more than just survive a recession: you can spot opportunities and thrive. Preparing for the unknown can put you leaps and bounds ahead of competitors who are too busy obsessing over the falling sky.
Governance, risk, and compliance (GRC) management will make your business resilient during the best of times — and nearly bulletproof during slowdowns. Learn what recession risk means for your business, plus our three tips to help you tackle recession risk right now.
What is Recession Risk?
Technically speaking, a recession is a long-term economic decline that lasts at least two financial quarters. During a recession, consumer buying power decreases, and people tend to spend less.
Reduction in consumer spending creates a domino effect that has a tangible impact on businesses. Your clients may cancel contracts or not spend as much, which could hurt your bottom line if you don’t plan for it. This could mean businesses are less likely to see the returns they were used to pre-recession.
With recession risk, we look at several factors to indicate that a recession is imminent. Usually, inflation is a good indicator that a recession is coming — and since 41% of CFOs say inflation is the most significant risk to their business right now, it seems like many businesses are aware of the financial pinch.
Of course, it’s not just inflation that’s causing problems. So many other factors add up to a tricky economy for U.S. businesses, including:
Supply chain bottlenecks
The war in Ukraine
There are no guarantees of when the recession will hit or how bad it will be, so we can only predict what will happen. That’s the issue at the heart of recession risk: businesses need to plan proactively for the headaches that come with a recession. Often, that comes with figuring out how to do more with less.
Now’s the time to protect your organization to weather the unknowns. After all, you can’t control the economy as a whole, but you can definitely reduce the impact a recession has on your livelihood.
3 Tips to Prepare for a Recession
We have a 25% chance of a recession in the next 12 months in the United States and a 65% chance of a recession in the next 24 months. The good news is that this gives businesses a few financial quarters to prepare for a recession.
Instead of looking over your shoulder for the boogeyman, these three proactive approaches will help you get your ducks in a row so you can thrive during a fiscal downshift.
1. Implement third-party risk management
You likely rely on third-party vendors to do some heavy lifting for you. Since outsourcing is usually cheaper than hiring internal employees, hiring vendors is a no-brainer.
You need every ounce of cash on hand during a recession to take advantage of opportunities. Do you really want your hard-earned money going towards regulatory fines, penalties, and lawsuits?
Controls management is a must to help your team stay on top of regulations. Compliance management software automates so much of your compliance — and it’s leaps and bounds cheaper than a fine.
You can maintain revenue levels during a recession by protecting your reputation with compliance management software. With the right solution, you can build accountability into every layer of your business, ensuring controls management at every step.
3. Lock down your IT systems against cyber risks
The jury is still out about whether or not recessions also bring out the criminal element. Do cybercriminals go into attack mode because they can or because they’re hard-up for money?
Whatever the reason, locking down your IT infrastructure to prevent these cyber risks from knocking on your door is a good idea regardless of the financial future. That might mean:
Automatically patching software
Requiring multi-factor authentication
Conducting phishing tests with your team
Training your team on security best practices
Ensuring SOC 2 compliance by locking down customer financial data
To be honest, cyber threats are already on the rise. Every dollar spent to avoid cybersecurity risk is money well-spent, especially if you have limited funds to recover from a data breach or ransomware attack.
Minimize Recession Risk Right Now
Recessions aren’t fun, but they aren’t something to fear. By playing your cards right, a recession can be a prime opportunity to grow your business while your competitors are busy worrying. But you need a plan to protect your business, starting with a solid GRC program so you can respond to unknowns accordingly.