Accounting

How Accountants Can Aid Businesses During a Recession

Aug 03, 2022 | By Stefan van Duyvendijk

how can accountants help prepare businesses for a recession

The dreaded "R" word is on everyone's mind again, and that's never a good thing.

With economic growth going in the wrong direction, and inflation still on the rise, it sure looks like that's where we're at. But with spending still high and jobless claims holding steady, economists are appropriately flumaxed.

This puts a lot of stress on everyone, but as accountants, it's our job to put our noses to the grindstone and keep generating the financial information that can help businesses make the decisions to weather the storm.

Here are a few ways accounting teams can help businesses during times of economic uncertainty.

How Recession Impacts Accounting Teams

If a recession is coming — or it's actually happening — it will impact every aspect of the business. Be aware of some of the unique challenges that your finance team will face during challenging times.

Increased Turnover and Slower Hiring

Accounting departments tend to be understaffed, partially due to the decline in accounting graduates and partly due to the Great Resignation. So it would be rare for layoffs to start among the finance team. 

Given the magnitude of a recession, the chance of burnout — already high among accountants — becomes a serious threat to the company. Additionally, hiring freezes make it difficult to alleviate some of these stressors.

Delayed Accounting Modernization

Accounting departments aren’t known to be on the cutting edge of innovation. Well, at least they weren't.

Learning from challenges faced during the pandemic, many accounting teams embraced technology to react to a totally new way of working, and actually discovered new efficiencies in the process.

However, during a slowing economy, investment in modernization and technology upgrades are likely to require greater scrutiny as companies look to reduce capital expenditures. Adopting a “good enough” mentality might prevail when making software purchases.

A lack of accounting modernization, staffing shortages, and reliance on manual procedures introduce operational risks, including:

  • Missing closing or reporting deadlines
  • Producing inaccurate financial statements
  • Lacking adequate oversight and review of staff

Expanded Compliance Measures

History shows that economic downturns create an increased appetite for growing compliance and regulatory oversight. We saw that most recently, in the aftermath of the recession of 2008 - 2009, when Congress passed the Dodd-Frank Act to reform Wall Street and provide increased consumer protections. 

Expanded compliance requirements will reduce a skeleton finance department's already thinly stretched bandwidth. 

If public markets become more challenged and increased regulatory compliance makes initial public offerings (IPO) less attractive, private funding sources and mergers and acquisitions will likely increase. 

IPOs traditionally require large amounts of time, people, and money. All of which may be in short supply in a downturn. But if your company needs more capital or liquidity that’s usually provided by an IPO, M&As may be a better option. 

Selling usually comes with less regulatory complexities and can be completed in a short time frame. But there will be plenty of due diligence to complete, so accounting teams won’t be completely off the hook. 

How Accountants Are Vital for a Company’s Survival in a Recession

Accountants are superheroes. Not particularly flashy ones, but capable of providing an incredible amount of critical information. Who else wants to study piles of documents, chase coworkers for receipts and purchase order approvals, spend hours reviewing thousands of transactions on a bank statement, and prepare countless tax forms?

Don’t underestimate your accounting team’s skills when a recession hits. Often, they will be the most valuable asset in alerting you before things go awry.

Budget Preparation and Monitoring

Accountants are keepers of the budget. And they enjoy keeping tabs on it. All accountants love looking at the “budget vs. actual” report each month and digging into any significant variances.

Teams will need to update budgets continuously as economic conditions change. And adhering to budgets will be critical to enduring a downturn. The accounting department will be essential for helping other groups stick to theirs by scrutinizing and explaining results.

Cash flow management is essential during a recession. Accountants can explore longer payment terms or expand credit limits with crucial vendors.

Data Analysis

You can’t afford to make decisions with bad data. And the last few years have taught us that having good data fast can be the difference between business success or failure.

While new software implementation may not be in the immediate budget, be sure you’re getting the most out of what you have. And ensure you’re not paying for subscriptions or licenses that don’t provide healthy ROIs.

Allow your finance team to automate routine tasks. Monthly bank reconciliations, recurring journal entries, and report preparation can be set on auto-pilot with the right technology – freeing up your team to provide strategic financial insights that can be used to make decisions about the future.

Stefan van Duyvendijk
Stefan van Duyvendijk is FloQast's first Accounting Operations Evangelist. Stefan is a tenured controller who has consistently nurtured finance professionals and improved accounting processes throughout his career. Previously he was Corporate Controller for Kodiak Cakes where he led a 10-member finance team through a pre-IPO initiative. Before that, he was U.S. Controller for Skullcandy and senior associate at KPMG.

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