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How to Prepare for a Recession with ERP

In preparing for and weathering recessions, few resources are as valuable as an ERP system. Here's how to prepare for a recession.
Sanket Akerkar | August 18, 2022

Recessions affect all businesses, regardless of industry or size, and declining wholesale-retail sales, industrial production rates, incomes, and much more can negatively impact companies for months. To successfully weather a recession, take your cues from those who gather emergency supplies before a storm hits and prepare your business in advance. Of course, this means you have to know how to prepare for a recession.

We’ve put together a list of steps you can take to “batten down the hatches,” so to speak. And each of these steps can be made easier by a cloud-based enterprise resource planning (ERP) solution.

How ERP Helps You Prepare for the Future—Today

A cloud ERP solution is a comprehensive business management tool that acts as a central data repository—housing real-time information from every department in a company. The system streamlines business operations by providing 24/7 access to that data, anytime, anywhere. Such an efficient, 360° view of your business is critical for analyzing operations, generating forecasts, and managing the steps to prepare for a recession.

1. Understand and Outline the Most Valuable Areas of Your Business

Not all aspects of your business are equally valuable. While each undoubtably contributes in its own way, some areas of your business can be classified as absolutely indispensable. With the visibility ERP provides, you can easily identify your organization’s most—and least—profitable sectors and classify them for development or pruning, as the case may be.

When pruning is necessary to prepare for a recession, Investopedia suggests several cost cutting measures: “streamlining the supply chain, downsizing to a smaller office, or moving to a less expensive building or area, closing facilities, reducing or eliminating outside professional services, such as agencies and contractors, etc.”

But implementing new technology, like a cloud-based ERP solution, is another way to increase efficiency and profitability—without necessarily requiring layoffs, pay cuts, or downsizing.

2. Pay Off Debts and Avoid New Financial Liabilities

Accruing debt is common because businesses need to finance their operations. If you have borrowed money or used a company credit card, then you likely have payments pending. In a healthy economy, this isn’t concerning, but, during a recession, it can limit your access to cash and cause investors to steer clear.

Before a recession hits, you should:

  • Pay off your debt, if possible.
  • Reduce costs/expenses.
  • Avoid new financial liabilities.
  • Build a cash reserve.

A cloud-based ERP solution will give you greater visibility of your accounting and financial data, which, in turn, will help you identify the debts you can eliminate. (Many advisors recommend the “debt avalanche strategy,” paying off loans with the highest interest rates first.) An ERP system can also help you re-evaluate—and reset—your budget based on accurate data.

3. Develop Stable and Sustainable Access to Capital

Managing finances doesn’t stop at paying off debt and curtailing expenses. It also involves securing additional financing, such as a business line of credit. This ensures that you have access to short-term funding when unexpected expenses arise or when revenue streams dry up.

Keep in mind, it’s much easier to secure a good interest rate when your business is thriving. It’s also much easier when you have an ERP solution with an integrated financial management module to track activities, offer personalized reports and dashboards, and automate workflows—all of which simplifies what could be a complex application process by putting a complete picture of your financials at your fingertips.

4. Diversify Your Sources of Revenue

When a recession hits, both businesses and consumers are affected. Because no one is immune from the economic downturn, it’s probable that some of your customers will be unable to pay on time or at all. The best time to alleviate this concern is before it happens. And the best way is by diversifying your sources of revenue.

If you depend on a small, narrowly defined audience or a single customer, you’ll need to broaden your reach. This expansion could come in the form of seeking customers in other markets or increasing your marketing efforts.

To make sure you don’t waste time and money on ineffective methods, your ERP system can help identify patterns and trends in your audience data, thereby preventing you from overleveraging your business.

5. Maintain a Lower Inventory

If it’s applicable to your business model, think about reducing your current inventory load. During a recession, it’s critical to minimize the amount of cash that is tied up in non-liquid assets. The more difficult your assets are to liquidate, the more you should consider reducing your total inventory.

ERP systems are essential for businesses that manage complicated supply chains or logistics workflows. With your ERP software’s inventory management capabilities, you’ll be able to quickly identify inventory levels and adapt to meet current needs and future projections. With a strong ERP system in place, you can reduce inventory while preventing shortages or disruptions.

6. Build a Culture of Resilience

A recession is stressful for you, your business, and your team members. But it’s up to you to lessen this stress by building a culture of resilience. Resilience is the ability to rebound from a disruption or major challenge. Being resilient is easier when you know what’s happening in your business and in the industry at large.

Keeping employees informed through open communication, collaboration, and visibility will not only keep them in the loop but also reassure them that you have a plan for riding out the economic storm. And because you’ve entrusted them with the details, they’ll be more willing to stand firm, even in the face of unexpected challenges.

Thankfully, you don’t have to seek out a system or systems to help you keep the communication lines open. Your centralized ERP solution is the perfect platform for engaging and informing the entire organization.

How Acumatica Can Help

Knowing how to prepare for a recession, and understanding the importance of doing so before the recession happens, gives you a distinct advantage over competitors. While they frantically try to figure out how to respond to the economic crisis, you will remain calm knowing that your business—which is resting on a modern cloud-based ERP solution—is able to withstand the storm.

If you’re ready to find the right ERP system for your business, then contact Acumatica’s experts today. Our award-winning, flexible, and future-proof cloud ERP software will supply what you and your teams need to thrive in today’s fast-moving market and ever-changing economy.

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Chief Revenue Officer at Acumatica
Categories: Market Trends & News

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