"When it comes to innovation, businesses should do as much as they can - as long as it doesn't cost anything. For some companies, innovating may be the only way to survive," says Jon Moulton.
I've worked through a few recessions, in the UK and the US, but this time around it's much nastier. In a very short space of time we've seen a housing market meltdown and the collapse of financial systems. Businesses need to adopt a survival strategy and forget about prosperity. People need to worry about being a survivor, not about being a rich survivor.
The key to getting through the recession will be to preserve cash and do everything you can to ensure you've got a solid banking situation. Businesses need to cut capital expenditure, avoid taking credit risks and make sure they're not holding inventory, which could be susceptible to deflation.
Every company will require exceptionally tight cash control and excellent forecasting systems. It's absolutely essential that those forecasting systems are realistic. Managing the balance sheet rather than the profit and loss account will bring rewards.
Zero-based budgeting
The sooner that businesses change their cost structures, the more likely they will be to survive. I absolutely advocate a zero-based budgeting approach, where every cost is questioned.
It's all about having a highly liquid, strong balance sheet and to achieve this, businesses can't assume that a budget needs to be 10 per cent higher than the previous year.
If redundancies are required, it's better to fire too many people than too few. This might sound harsh but repeated rounds of redundancies erode morale and can eventually destroy a company. Businesses also need to take what they can from the government, whether that's PAYE on VAT payment delays, any future reductions in corporation tax or grants for businesses in certain parts of the country.
Opportunities for innovation
When it comes to innovation, businesses should do as much as they can - as long as it doesn't cost anything! For some companies, innovating may be the only way to survive.
Taking over distressed companies can work if you grasp opportunities to come up with dramatically new ways to run the business, such as outsourcing parts of it or even closing divisions. Of course it's always the case that recession will lead to opportunities for brand new ventures. The general lowering of costs can make some businesses viable when they wouldn't have been before.
Small, growing ventures are going to find it especially difficult to make progress in this market, with people less likely to be adopting new products or services. In particular, finding second or third round funding will be a real challenge and it might not be available at all.
We'll see some businesses do well during this recession, but not many. It'll certainly be a good year for lawyers and accountants specialising in restructuring, but at least 95 per cent of businesses will scrape through as survivors - hurt, but still operational.
Jon Moulton is the founder and Managing Partner of Alchemy.
He was previously Managing Partner at Schroder Ventures (now Permira) in London and prior to that with Citicorp Venture Capital (now CVC) in London and New York.
He has extensive experience in buy-outs, turnarounds and development capital deals in all sectors.
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