Today’s economic climate can be best characterized as uncertain. There are some facts we can point to, of course, such as the inevitable economic slowdown that comes with social distancing guidelines and community gathering conditions. Such restrictive measures led to the shutdown of or limits placed on businesses across many sectors, notably the service industry. We will likely see some form of recession with a slowed recovery through to the end of the year, but what we don’t know outstrips what we do know.
The biggest unknown may be the health crisis itself. We don’t know how long it will last. Such uncertainty has economic implications, but since one is tied to the other, we don’t know how long-lasting or acute those economic consequences will be. We also don’t know how consumers will behave once we get past past the apex of the pandemic in the U.S. Will consumer confidence rebound quickly if workers’ jobs are restored, or will they retain lingering doubts — a “recession mentality,” so to speak? We don’t know.
Uncertainty makes it difficult for business executives to plan, but companies cannot stop planning just because the outlook is uncertain. In some ways, it’s more important to plan so as to limit the number of variables outside your control. With that in mind, here are three actions chief financial officers should consider when planning for the rest of the year and beyond, regardless of how long the recovery takes.
Protect Your Talent
The following was true before the current health crisis, but it’s even truer now: Retain your talent. Keeping talent can be difficult during current economic conditions, but CFOs must prioritize retaining top-flight talent. Skilled labor was hard to come by prior to the pandemic and will be that much harder to come by now. Of course, trimming the budget may be necessary, but when reevaluating your budget, it may be worth moving things around so you can keep that skilled labor, which will pay dividends through the slowdown and beyond.
Take A Deeper Dive Into Understanding The Evolving Consumer
Too many companies still rely on data that provides a partial view of their consumers, which has hindered their ability to adapt during the past decade. Given that the current health and economic situations are unprecedented, it will be difficult to know exactly how U.S. consumers will behave when the health crisis passes.
But one thing is certain: Consumer behavior will change. It already has. For example, take a look at the food service and grocery industries. Delivery and pickup are now paramount, driven by consumers adapting both to government-mandated restrictions on community gathering as well as their concerns about food safety and surface contamination.
How many other consumer behaviors might be changing? How many will change if the crisis persists? It’s important to get a handle on these.
Business-to-consumer companies will need to adjust their customer experiences and match these new behaviors to thrive during any long-term economic recovery. It behooves CFOs to gather as much data as possible to paint a full picture of this new consumer, because there will be new opportunities. Take the aforementioned grocery example. This is an opportunity for delivery platforms to partner with regional grocery stores that aren’t structured for delivery but need to ramp up quickly. There will be many similar opportunities across all consumer-facing industries.
Also consider the long-term implications of this crisis even if it ends in just a few months. In other words, consumers might not revert to their old selves once these social distancing measures are lifted. How else might the consumer change their behavior in the long term? Reacting to and anticipating those new behaviors will create opportunities.
Look At Mergers And Acquisitions
One of the biggest risks to U.S. companies is the huge amount of corporate debt that has been created due to a growing economy and low interest rates. The past couple of years saw a strong economy that motivated companies to acquire, which left many of them overleveraged. Additionally, there was an abundance of strong IPOs for companies that were still unprofitable.
This created a divide: There were those that ended up in debt, and those that emerged with plenty of capital in their coffers. This divide will be amplified during a recession, whereby those overleveraged companies will struggle to meet the rigors of a tough economy. Companies that have been conservative during the past few years and did not accumulate debt will find themselves in a strong position to find some bargains in the form of acquisitions.
Opportunity In Trying Times
Crises present challenges, but they also present opportunities for the companies with the insight to identify them and the resources to pursue them. There will be trying times ahead, but CFOs who take immediate action will be able to capitalize on the “new normal” in an economy that will be in flux for the rest of 2020. CFOs who invest in the right resources in anticipation of evolving consumer trends and identify areas of growth will uncover plentiful opportunities for their companies to come out of this recession in a strong position.