But advisory Gartner thinks CFOs need to assess their companies’ recession readiness now.
The Gartner report titled, “Recession Watch 2019: Corporate Recession Readiness in 9 Charts,” says that while the largest organizations are well-capitalized for the next downturn, many small and midsized companies have become overleveraged, setting the stage for potential “fire sales” on future assets.
CFOs seeking to bolster their organizations’ recession preparedness should start by assessing their deal pipelines, testing the speed of their team’s financial analysis and ensuring their balance sheets can support countercyclical investments, said the advisory firm.
“Significant ongoing policy uncertainty has distorted many traditional indicators of an oncoming recession, such as the yield curve,” said Tim Raiswell, research vice president at Gartner. “A more practical question for CFOs to ask is how well-prepared their own, and other, companies are to face a recession today; our analysis suggests that this answer varies drastically between larger and smaller companies and industry leaders and their less profitable peers.”
In analyzing their organization’s recession preparedness, Gartner recommends that CFOs focus on the followings.
Speed of financial analysis
CFOs should assess their team’s ability to quickly deliver CEO-level reporting on growth project costs and performance going back five years, said Gartner.
With average profitability falling across all industries, screening for profitable capex and R&D investments, while having clarity about operating spend alignment with profitable growth goals, becomes paramount, the firm added..
Deal pipeline accuracy
Now is the time for well-capitalized companies to ensure their deal pipeline is current by reviewing the financial health of target organizations, according to the research firm.
Countercyclical investment readiness
As smaller and less profitable companies come under increasing strain, companies prepared to invest counter-cyclically will realize significant potential for profit taking opportunities, the firm noted.
Previous Gartner research has found that the investments of long-term growth leaders are significantly less correlated to GDP compared with a control group, said Gartner, adding that this reinforces the need for CFOs to avoid stretching balance sheets with ambiguous growth investments—particularly in non-core areas—and maintain capital for potential discounted sales of distressed assets.