At this point, it seems that a Recession starting in 2025 is almost inevitable. The media and pundits are almost unanimous in this forecast. Given my record of predicting five of the past two recessions, I’m hesitant to predict another, but I have to agree with everyone else.
I’ve read one report that blamed the coming recession on Trump inheriting an economy from Biden that was weaker than was previously recognized. Everything else I’ve read lays the blame squarely on Trump’s policies. This is an unforced error that virtually everyone sees other than the President.
There seem to be two main elements to this. The first is the tariffs, which will have devasting effects on Americans and will never work. The second is the sudden and arbitrary nature of the changes, making it impossible to plan. In such circumstances, most businesses forego new initiatives and consumers cut back on spending. When everyone does this, it becomes a self-fulfilling prophecy.
Interest rates, which had been slowly trending downwards, now seem to have stabilized at relatively high rates. Consumer spending is slowing and that is likely to accelerate as prices go up with tariffs kicking in. The classic inverted yield curve, historically a predictor of a coming Recession, is in place.
We are likely headed for Stagflation, a term coined in the 1970s during a period of high inflation and slow economic growth.
What to Do?
For businesses, the things to do are well known but worth repeating. First and foremost, strengthen your cash position. That means increased efforts on cash collections before this gets worse and weak players begin to fail. Tighten credit policies going forward. Defer or cancel capital expenditures. Renegotiate payment terms where you’re able to. Negotiate an increase in your line of credit, based on strong 2024 results.
Other ideas include trying to build more flexibility into your cost structure. For example, try to make compensation variable (commissions, incentive-based bonuses) rather than fixed. Take a knife to underperforming product or service offerings. Considering shutting poorly performing locations.
Invest in high performers while terminating chronic underperformers. If you have some employees you have been working to rehabilitate for a long time, this may be the time you no longer have that luxury.
Take another look at strategic priorities. Yes, you probably went through this less than a year ago. Since November, everything has changed.
I’m always a proponent of SRO Budgeting. This stands for Survival, Realistic, Optimistic Budgeting. It is time to do a Survival Budget. This means doing a Budget that is 10 to 25 percent less in topline revenue you previously predicted for 2025. Go through the process, only in Excel for now, to see what you will have to do to stay above breakeven if revenues fall this much. In particular, determine how many and who you would let go of if revenues were to drop this much.
Know that you can’t afford to carry excess payrolls and lose money, hoping for the situation to turn around. This Recession is likely to last longer than is typical.
Another Idea
I have another idea that could be helpful. I’ll cover that next week.
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