Are you prepared for the recession?

My friends,

We are moving into a period of adversity, and that adversity is called inflation. In the 1970s, I was hired by General Electric (GE) to help them navigate through a once in a lifetime period of inflation, and ultimately a recession. It led me to create 7 tips for C-suites to utilize so that organizations can survive and thrive through uncertain times:

#1: Cash Is King

Manage your business on the basis of cash, not on the basis of accounting. In a period of inflation, the same volume of business will consume more cash.

Think about Jeff Bezos and Amazon. They manage a $500 billion company on the basis of cash. I learned how to manage a business at the age of 10 with my two brothers in a little town that didn’t even know what accounting was. If we could do it then, you can do it now!

#2: Cash Traps

Every single company has cash traps, you just need to know where to look. The two most common cash trap areas are account receivables and inventories. One of the primary cash traps is psychologically driven. Fearing supply shortages and rising prices, companies want to stock up. When I was in Brazil, I saw this at a very localized level. The bread in the local bakery always increased at noon, so people would buy in the morning. It was this precise activity that tightened the supply and prompted the price increase. This phenomenon occurs at the international level, too.

#3: Communication

These are tough conversations you are going to have. There’s no room for “fast talking” in this. You need to connect with customers, with other CEOs, in the boardroom, and across different channels.

Talk slowly. Connect with them. Make sure they understand the need for interdepartmental communication.

#4: Information - Inflation Adjusted?

I had a company come to me and say, “We grew sales by $120 million last year.” This ended up being the exact opposite of what I wanted to hear. I knew that once inflation kicked in, the realized gains would be lower and their margins would be even lower than that.

The short of it: don’t look for revenue-driven metrics. The CEO may be pleased in the short-term, but your company will end up “circling the drain” in the long-run. Instead, revert to the first two rules.

There are always going to be two sources of revenue: individual product purchases, and bulk orders by larger customers. Often, larger customers may receive a discount based on volume. It is important to keep these customers in mind when accounting. Think about the discounts you offer to your larger customers and the impact it has on inflation.?

#5: Value Chains?

Think about the value chain of your company. Not just about your customer, but your customer’s customer, and theirs as well, all the way down the line. I do this exercise with my groups to help them map out their own value chains.

Now, think about inflation and how this factors in. By the time your customer’s customer sees your product, the price may have gone up by 20%. You need to think about how this pricing power changes along the value chain and leverage it where possible.?

#6: Capital Allocation

Capital allocation is simple - you have been putting projects together and distributing funds with a focus on growth. However, if you see a sector with zero growth, you need to start rethinking your projects that require capital.?

Digitization is an area that is still worth allocating funds. This is because the data you acquire from digital customers is more valuable than their purchase of any one particular item or service. Digitization, therefore, assists with other initiatives throughout your business. Companies can set up a fully online business in as little as eight weeks, so this is a quick and worthwhile endeavor.

#7: KPIs

About a month ago, I was visiting one of my clients and I watched their cash condition. All management teams focused on how they were measured by the board and by their investors. In this discussion, it became clear that their KPI was based on revenue growth, not on the generation and use of cash. They were running into problems with borrowing and I suggested to the board to change the KPI.

This is going to be required of every company. Shift your KPIs to focus on cash and to align with the other rules.

These are just a few tips to help. I encourage you to apply them. At the end of the day, companies don’t compete - leaders do. Leadership is not limited to the CEO. Anyone can arrange the data in a simple way to share with your leadership team.

I talk in great depth about how to implement each one of these steps in my new book, “Leading Through Inflation.”

Pre-Order Today: https://leadingthroughinflation.com/