Will there be a recession? How spend management improves agility in the face of uncertainty.

“Those who have knowledge don’t predict. Those who predict don’t have knowledge.” — Lao Tzu

Predictions about the state of the economy are notoriously difficult. In fact, one study by the International Monetary Fund concluded that economists are uniformly unsuccessful at predicting recessions. In the words of Prakash Loungani, one of the study’s authors, “the failure of economists to forecast recessions is virtually unblemished.”

To protect runway and drive growth, it’s really a matter of being able to plan against ever-changing forecasts. That means creating models and operations that can cope with all the contradictory signs and data. At our recent webinar, “Balancing cash flow and growth in an uncertain demand environment,” 44% of attendees said they’d revised their forecast at least three times in the last year.

So, should you be planning for an upcoming recession? According to some analysts, we should all buckle down and prepare for the worst. But others say that speculation of a recession was premature. Here is just a small sampling of predictions and signs.

Yes, there will be a recession.

•  A PwC survey of over 4,400 CEOs found that almost 75% of them expect a recession in 2023. 
• Tom Loverro, General Partner at IVP, recently garnered a lot of attention on Twitter by predicting that, “there’s a mass extinction event coming for early & mid-stage companies. Late ’23 & ’24 will make the ’08 financial crisis look quaint for startups.” 
• As of February 2023, the yield curve is inverted, which means that short-term interest rates are close to, or greater than, long-term rates. An inverted yield curve has preceded every recession since WWII. 

Not this time.

• The classic definition of a recession is two consecutive terms of negative gross domestic product — but in the last quarter of 2022, GDP grew at an annualized rate of 2.9%. 
• The labor market continues to be robust. The National Bureau of Economic Research makes the official call on whether or not we’re in a recession. Two of the six factors they consider are linked to employment: the change in non-farm payrolls and the change in household employment, which are both strong at the moment.
• Year-over-year consumer spending also rose, suggesting that people have, and trust that they will continue to have, disposable income. 

Becoming recession-ready. 

So, what’s a finance professional to do? With so much contradictory information, agility is key. Processes need to support quick pivots and adjustments, especially when it comes to managing company spending. Forward-thinking finance executives need to be recession-ready, even if they aren’t convinced we’re in such dire straits. Here are some ways you can prepare:

1. Focus on cost efficiency. Efficiency metrics that measure how effectively you use your resources are more important now. This focus on being able to do more with less helps extend your runway — something that is central for surviving a downturn in demand. Early-stage companies are particularly vulnerable. One study found that 80% of early-stage companies currently have less than 12 months of runway.

Accounting automation improves efficiency by eliminating expensive time-consuming manual tasks. The impact can be dramatic: Healthcare network Doximity estimates the move to Airbase saves their finance team 60 hours each month. In addition to time savings, the visibility and control that a spend management system gives are required to reduce unnecessary, unplanned, or rogue spending. Shoring up the tools to practice efficiency is an essential response to a possible recession.

2. Build in processes for agility. The best software optimizes processes that can react quickly to change, whether you need to cut budgets in recessionary times or increase spending to respond to new growth opportunities. Ultimately, the goal isn’t as much the near-impossible task of predicting the future, but rather, being able to respond effectively to whatever it holds. Spend management provides the levers of control needed to be responsive. With Airbase, you can easily adjust amount limits and expiration dates for card spending, and increase or decrease department budgets. An automated GL sync means financial status is always up to date and easily visible without having to ask the finance team to create time-consuming ad hoc reports.

3. Reduce risk. There’s a lot at stake when funds are less available. Not only do you need to ensure the proper controls are in place to prevent unauthorized transactions, but you must also reduce the risk of funds not being available when you need them. Again, it comes down to having visibility into — and control over — company spending. Modern spend management creates a process that controls for risk at all levels of the procurement process.

4. Increase the focus on ROI. The ROI of the tech stack in supporting your own operations can not only justify a project, but it can also help you stack rank priorities. Organizations with clunky, dated software miss out on the value provided by a modern consolidated solution, and this value can be measured in a tangible bottom line impact. The sooner your company invests in new technology with a positive ROI, the sooner it will earn this value.

One of the often overlooked contributors to the value that modern software brings is its ability to integrate with multiple business processes, which in turn maximizes the value of all systems. Deep native integrations between spend management and, say, your general ledger make both systems more efficient and accurate, and with better data. Integrating your existing card program with either Silicon Valley Bank or American Express into Airbase can strengthen banking relationships. Integrating spend management into HRIS systems keep authorizations to spend company money up-to-date as employees join and leave a company.

5. Monitor retention metrics and sales cycles. As the economy shifts into a slower gear, your retention rates may drop as businesses cut services. At the same time, your sales cycle may be expected to lengthen as your prospects delay making new investments. Both of these negative impacts on revenue will put further pressure on the need to control and reduce expenses. Having the levers of control to adjust your expenses in response to either of these metrics changing is vital to success.

6. Reduce unnecessary spending. When every dollar counts, you want to eliminate unnecessary and duplicate spending, like paying twice for the same subscription or continuing subscriptions for people who have left the company. You need to avoid unwanted auto-renewals. Without the right tools, it’s difficult to see these issues and enforce budget limits.

Software-enabled corporate cards alert you to any zombie or duplicate spend. Limits can easily be adjusted in response to budget adjustments or opportunities. A full audit trail is generated with each transaction, and all spend is synced automatically to the GL for complete visibility into all spending.

Will there be a recession? The jury is decidedly out. But recession-proofing your processes is an investment that pays off no matter what the future holds. Find out how Airbase can help — schedule a demo with us!