I think the risks of severe recession are still moderately high and maybe 20, 25%. And I don't think the IMF’s numbers do a good enough job of pricing that in.
The COVID-19 pandemic, e-commerce and digital platforms disrupting traditional business ,and globalization increasing competition have radically changed the economic landscape for small businesses in recent years. But now, businesses face new challenges as the International Monetary Fund (IMF) predicts global growth to fall to 2.9% in 2023, a sharp slowdown from around 3.4% in 2022.
The IMF also anticipates global inflation to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. Slowing growth could mean less demand for goods and services, while lower inflation could see businesses lose their pricing power, resulting in lower profit margins. Small businesses may struggle to secure financing and investment, which could affect strategy and decision-making.
In the face of a predicted global recession in 2023, we sat down with Damian Brychcy, COO and US MD of Capital on Tap, to discover his thoughts on the changing economic landscape and to hear his tips for how small businesses can weather financial storms.
Check out more interviews with entrepreneurs here.
WOULD YOU LIKE TO GET FEATURED?
All interviews are 100% FREE OF CHARGE
Table of Contents
Have you seen any change in spending behavior over the last 12 months?
Damian Brychcy: At Capital on Tap, we primarily serve small businesses in the United Kingdom and the United States. Over the past 12 months, we haven’t really seen any major changes in either spending behavior or lending behavior amongst micro and small businesses in either country.
Amid all the doom and gloom and inflationary tails and economic troubles ahead, our customers and the small businesses in both countries have remained remarkably stable.
Do you think the IMF’s predictions of a slowdown in global growth and a tapering in inflation are correct?
Damian Brychcy: I think the IMF’s predictions are accurate. But I think what it doesn’t contemplate is a major recession in either the UK or the US; but rather just more of the same at a slightly slower pace. I think a risk of a major recession is almost always on the horizon.
We’ve seen black swan events like the rapid closing of Silicon Valley Bank and Silvergate, and these things can spread like wildfire and cause contagion risk. So, I always think, the IMF thinks in averages, but the world doesn’t behave in averages. I think the risks of severe recession are still moderately high and maybe 20, 25%. And I don’t think the IMF’s numbers do a good enough job of pricing that in.
“I think the risks of severe recession are still moderately high and maybe 20, 25%. And I don’t think the IMF’s numbers do a good enough job of pricing that in.”
Do you think the media impacts market behavior?
Damian Brychcy: I think the media does have a slight impact on market behavior, but I think the market is not the economy. When the media talks about inflation or publishes different studies or different pieces of info, I think that can move the market more than it can move the economy.
I think most people aren’t going to change their day-to-day habits or day-to-day life choices based on some news stories unless they’re so negative for so long, but I don’t think that normally happens. I do think the media impacts market behavior, but not long-term economic behavior.
How important is cash flow management in tough economic times and how can businesses be more efficient?
Damian Brychcy: I think there’s two things for small businesses in particular to optimize for. The first is what’s called the cash conversion cycle, which is, how long you have to pay your suppliers before your customers pay you. If you can get paid by your customers before you have to pay your suppliers, then you’ve got a great business and you have a negative cash conversion cycle, which is phenomenal.
Most businesses can’t do that, and that’s the reality of the world. But what I like to tell people is that a business credit card is a great way to bridge that cash flow without having to pay interest. Most business credit cards can give you up to 50 or 60 days of interest free, as long as you respect the grace period and make sure to pay your balance in full by the due date.
“A business credit card is a great way to bridge that cash flow without having to pay interest.”
I also think for short-term borrowing, a credit card or kind of a bank overdraft facility can be a great option, but only if you’re looking for a month or two. For longer term, I would try to have a drawable business loan that you could pull down if your business really needs it.
I think a business should be trying to optimize for all of that, pushing your suppliers to give you better terms, getting your customers to pay you faster, having a business credit card that you put most of your spend on, and even having a backup business loan.
“For longer term, I would try to have a drawable business loan that you could pull down if your business really needs it.”
How can technology play a role in supporting small businesses through a recession?
Damian Brychcy: I think technology is massively deflationary. If I was to start a small business today, depending on the type of business I could potentially do everything I need to do without needing to hire people.
So whether it was setting up our finances, payroll, or our whole HR system, there’s software for almost all of that. I really think there’s an opportunity for small business owners to ride that technological wave and realize that most things that once had to be someone’s job are now just software programs that run in the background that you pay a relatively small monthly fee for.
I actually think there’s a lot of leverage for small businesses here and if anything, small business owners should be thinking about that sooner rather than later as we head into a potential recession.
“There’s an opportunity for small business owners to ride that technological wave and realize that most things that once had to be someone’s job are now just software programs.”
What’s the top tip you would give any business that’s suffering because of the impact of a recession?
Damian Brychcy: My number one tip would be that the best businesses are the businesses that don’t die. You don’t have to worry about maximizing profits in a recession. You don’t have to worry about growing your business in a recession. Your job in a recession is just to survive. I think the best businesses are like cockroaches; they can survive no matter what. And the longer you survive, the more likely it is you’re going to survive in the future.
So, getting through a recession just puts you in a much stronger position because you’ve likely improved your cash flow management, you’ve likely implemented technology, you’ve likely done all the things I’ve previously alluded to and now you’re in a position, where once the economy picks back up, all that time you spent optimizing your business just flows through to the bottom line.
I think the best businesses are either started or optimized during recession and then when the boom times follow, it’s an amazing place to be as a small business owner.
“Your job in a recession is just to survive… the best businesses are like cockroaches; they can survive no matter what. And the longer you survive, the more likely it is you’re going to survive in the future.”
Conclusion
Surviving a recession requires businesses to be resilient and agile. They must be prepared to embrace new opportunities by optimizing technology and short-term borrowing to manage their cash flow. By focusing on survival rather than growth, small business owners can redirect their resources towards essential operations and emerge from a recession stronger and more competitive than before.
Jed Morley, VIP Contributor to ValiantCEO and the host of this interview would like to thank Damian Brychcy for taking the time to do this interview and share his knowledge and experience with our readers.
If you would like to get in touch with Damian Brychcy or his company, you can do it through his – Linkedin Page
Disclaimer: The ValiantCEO Community welcomes voices from many spheres on our open platform. We publish pieces as written by outside contributors with a wide range of opinions, which don’t necessarily reflect our own. Community stories are not commissioned by our editorial team and must meet our guidelines prior to being published.
