Like spring, summer, fall and winter, an economic recession is a natural stage of an (economic) life cycle. And much like how any season can produce extreme weather, managing a business in a recession can present unique challenges for business owners and employees.
The United States economy is complex and comprised of many industries. Its growth is measured by a number called gross domestic product (GDP). When all is going well, the overall economy expands, which means businesses are making money, growing larger and hiring people. Those people earn increasingly higher incomes (hopefully) and purchase more products, which further drives economic expansion.
At some point, like a rubber band stretched to its limit, those underlying economic factors begin to slow, reach a peak and then reverse. When they decline for more than a few months consecutively, the economy is in a recession.
There have been more than 40 recorded recessions in the United States, and each is unique. Some last for months; others last years. The Great Depression was the worst in U.S. history. The financial crisis of 2007-2009 was the worst of many of our lifetimes. Each happened for different reasons, and the next recession will have a catalyst of its own.
It’s impossible to predict when a recession will happen or what will cause it. But there are some common symptoms of a recessed economy that impact businesses. Once you understand what they are, you can better prepare your business and your workforce for an economic retraction.
Here are five strategies for identifying how a recession might impact your business and how to handle it.
1. Assess your business’s health
In the months leading up to a recession, consumer spending and available capital can both decline, which can cause a business to feel a pinch in their budgets.
This means some difficult decisions may have to be made regarding product pricing, marketing initiatives, hiring, benefits and even new launches. While each business will experience a recession in unique ways, the most common challenges faced by companies of all sizes include:
- Temptation to cut product size, quality and benefits – or raise prices. When lagging sales no longer pay for the cost of doing business, businesses may look to products to find wiggle room in the operating budget.
- Not enough capital to pay employees. Companies may feel they can no longer pursue plans to expand operations, pay bonuses or even keep the workers they have.
- Lower employee morale and productivity. Frequent layoffs and employees asked to do more with less can lead to a culture of apprehension. Productivity can suffer when employees feel uncertain and unmotivated by bad news.
Data is the best way to meet these challenges head on. It’s vital to understand what the metrics say about your day-to-day operations, even when they show that your company may be suffering.
Try to answer these questions:
- Are there inefficiencies regarding your product or service offerings?
- How much talent can we afford right now? How far can we really stretch people?
- What resources do you need to maintain or exceed current output?
2. Implement change
Now that you’ve identified the trouble areas of your business, it’s time to make changes that will make your business more resilient in this (and every) economic climate.
This could include:
- Realigning your staff or restructuring your organizational chart
- Evaluating products and services to ensure the market demands continue to be met for your clients
- Readjusting benchmarks and projected growth targets
Not every problem can be solved at once. Prioritize issues with the highest potential to damage to your customer satisfaction, business culture and bottom line.
Actions to take:
- Personnel: Can you consolidate redundancies? Can the job of two workers be performed by one? Is job-sharing an appropriate solution? Could the non-essential employee be moved to an area where talent is scarce? While layoffs are never ideal, struggling companies can’t afford to pay for repetitive processes.
- Products and services: Consider reducing or eliminating products that don’t generate profits or with low profit margins. Look at the labor required for each product. If most of your employees’ time is spent on low-margin products, then perhaps their time can be better spent on your profit centers.
These changes may not come easy to your staff. And having difficult conversations with employees is, well, difficult. Approach the conversations around downsizing and other sensitive matters carefully.
Things to consider:
- Tackle the issues head-on: Keeping the news private about layoffs or other changes can do more harm than good. What you fail to tell your workers can end up becoming a PR nightmare. Get ahead of rumors by having an honest dialogue with your team. Be transparent by being honest about hard truths, and your employees will respect you for it.
- Don’t let work fall by the wayside: Be conscious of the fact that changes to your workforce may make the business vulnerable to inefficiencies. The impact of the recession should be mitigated so that the customer doesn’t feel your internal strife.
3. Maximize your talent
When the recession puts a squeeze on your resources, including your human capital, consider how you can maximize the teams you already have in place.
This could include:
- Providing encouragement and reassurances to your existing leaders and staff
- Identifying undiscovered leaders in your organization and calling on them to step up
Actions to take:
- Rally the troops: Explain that while these may be tough times, the tide will change. If everyone bands together, the company will persevere. Remind them that their hard work is valued and does not go unnoticed or unappreciated.
- Identify leaders: Ask your staff to help identify unrecognized natural leaders. Is there someone that everyone relies on during stressful times? Who is the person who answers questions, provides guidance and acts as a peer mentor without being asked? Once identified, encourage these high producers to take on more responsibility and fill in gaps.
- Track everything: Use metrics to track and recognize core competencies. Understand who is on the bench and whether they can assume extra responsibility. That way you can begin to cross train team members.
- Always listen: Regularly solicit feedback from your leaders, heavy hitters and regular employees. Their intimate knowledge of the company could inspire innovative solutions to problems both small and systemic. Having this type of buy-in can keep morale high and productivity consistent.
4. Meet the needs of your employees
A recession is hard on everyone, and while it can have a damaging impact on morale, you need your employees to be more efficient and productive than ever.
You achieve this by understanding your employee’s personal needs.
Listen to your employees. If you experience recession-induced stress in the workplace, it’s likely that employees are suffering through financial, emotional or interpersonal strains at home, as well.
This is more important than ever during a recession, especially with employees taking on extra responsibility.
Actions to consider:
- Offer intangible perks: Knowing how to motivate employees outside of monetary compensation is essential. Flexible scheduling — allowing employees to take time off or work remotely — is one popular intangible perk. As you implement these changes, closely monitor productivity. Don’t let relaxed oversight lead to decreased employee output.
- Make every manager an advocate for mental and emotional health: Educate employees on how mental health issues can affect the workplace. Ensure that managers are prepared to offer help, follow wise protocol and avoid developing stigmatizing prejudices.
- Use your employee assistance program: These programs can be a great asset for employees struggling through various issues.
5. Recession proof your business
Business owners who understand that recessions are normal and should be expected can prepare for them. Those who plan for all possible outcomes are best poised to survive.
Actions to take:
- Think long-term: Planning can take much of the unknown out of the equation. Give leaders tools for training, productivity, communication and mitigation long before they need it.
- Conduct regular checkups: Instead of entering crisis mode once a recession hits, use every opportunity to gauge the health of your business. Use data to guide how you build efficient teams, foster new leadership and support your employees’ well-being. Those that are proactive, rather than reactive, may get better results.
Recessions are unavoidable, but if you plan ahead, your business can survive and grow stronger as a result.
- Regularly assess the health of your business.
- Readjust your products and services and the resources required as necessary.
- Build a lean, efficient team and remind them that you appreciate them.
- Listen to your employees’ needs, and they will give discretionary effort for you.
- Never stop thinking about how you can accomplish numbers 1-4 better and more efficiently.
If you follow these strategies, your business will be better prepared to survive any economic climate.
However, recession isn’t the only type of disaster that can impact your business. Any number of outside variables could have adverse effects if you’re not prepared. To learn more about how to protect your company from any disaster situation, download our complimentary magazine: The Insperity guide to crisis management.