- August 11, 2022
- Posted by: Ms. Mariam
- Category: Blog
The Biggest Mistakes Business Leaders Make During A Recession
Currently, Pakistan is facing a crisis including political instability and economic recession. The main victim of these crises is the public and businesses whether it’s small firms or large, face high commodity prices, unemployment, energy crisis, depreciation of money, and inflation.
Being a business leader is very challenging in this situation. For a leader, tough decisions become even harder when the economy drops into a recession. During an economic recession, it’s easy to make mistakes, as leaders are facing decisions and situations that they have never had to deal with before.
There are many biggest mistakes business leaders make during the recession but here are the 4 major mistakes.
1. Leaders behave more Reactive than Proactive in crisis
A reactive leader will wait for events to occur and then respond to them. For instance, a reactive leader might act as if they will constantly be in a booming market and then be unprepared when an economic downturn arrives. Due to panic attacks and anxiety business leaders’ ability to think clearly for more rational decisions is affected. So, first of all, don’t get panic; even though the recession is inevitable, no one can predict how severe it will be. However, preparing for the worst never hurts. In this situation, the reactive approach never works.
To be proactive means to plan for and adapt to all aspects of life positive and negative no matter how or when they occur. For smarter decisions make sure you have accurate and actionable insights at your fingertips. Proactivity is a balance between planning for what you can control and accepting and adapting to what you can’t control. Successful leaders are often proactive and anticipate problems before they occur and actively seek resolutions.
2. Lack of Adaptability to change
The most crippling mistake leaders make in a crisis is resisting change and turning a blind eye to new ideas. As we know many companies won’t make it through COVID-19, and many had drastically changed their business models to survive.
Leaders should be adaptive to change because change is inevitable and constant. Adapting to change always requires a flexible leadership style. Adaptability means having ready to access a range of behaviors that enables business leaders to shift and experiment as things change. So they should adjust their management style, revise plans as necessary, and consider other people’s concerns during change.
3. Running Out of Working Capital
As profit margins decline in crisis and expenses increase relative to revenue. Businesses stand to run out of working capital and cash flow shortages will likely occur if you don’t make adjustments. The importance of working capital management as an existential element to the financial health of your business. But in this type of crisis, management of working capital is more challenging.
“Revenue is vanity, profit is sanity, but cash is king.”
For the solution, don’t do impulsive buying and keep a careful eye on expenses. Moreover, improve receivables, for that, you should have a good collections system in place. An important aspect of working capital is to send out invoices as soon as possible. In auditing your invoicing system, you need to eliminate inefficiencies that may cause delays in sending invoices to debtors. Encourage customers to pay quickly. It is important to check invoices for accuracy before sending them to your clients. This will help you prevent payment delays.
4. Lack of Effective Communication With Internal Team
Nobody enjoys breaking bad news, but effective leadership requires keeping your team and partners in the loop during both good and terrible times. People are frightened and uneasy about their employment security. It’s essential for leaders to be honest about the challenges the company is facing, even if they don’t have all the answers.
Business Leaders must act in a way that is best for their companies, which often entails making difficult choices and having unpleasant discussions. Leaders, who operate with compassion and transparency during the crisis, even while making difficult decisions, will engender greater loyalty and trust in the employees.
Even though the path ahead will be challenging but responding swiftly and strategically can help leaders come out of a crisis stronger. The current Pakistan economic reality will be the most challenging moment in many leaders’ careers, but it will also create opportunities for new businesses and solutions to flourish.