recession-proof-business

Weathering the storm: How to “recession proof” your business

Talks of an impending economic recession, whether it’s forecasted to be a rain shower or a torrential downpour, can be stressful for all business leaders. No matter what actually unfolds, it’s a good idea to prepare for the road ahead in order to mitigate the worst impacts on your business.

Some advice is universal and applies to any economic downturn, such as:

  • Protect cash flow
  • Reevaluate unnecessary expenses
  • Solidify relationships with customers

What’s happening today?

However, there’s nothing conventional about today’s economic landscape. The strange blend of factors that we’re currently experiencing make the looming recession unlike any other:

  • Inflation coupled with rising interest rates
  • A severe talent shortage
  • Heightened turnover owed to the ongoing Great Resignation
  • Wage growth
  • The rise of hybrid and remote work

These factors call for a unique approach to recession-proofing your business – and, in some cases, throwing out old rules from yesterday’s playbook that could cause more harm than good at this moment.

How to prepare your business for a recession

So, what does this all mean for your business right now? How can you begin preparing?

  • Focus on your company’s ability to pivot quickly to changing external conditions.
  • Liquidity – the amount of cash your business has on hand – is always important, but it’s especially so in a downturn. Think about how much surplus you have – enough for three months, six months or even a year? What’s the optimal amount for your business regularly, and what amount will provide sufficient security in a recession?
  • Credit markets tend to tighten during economic slowdowns. As conditions worsen, it can become more difficult to obtain additional capital. Think about your borrowing capacity. If you need to increase your credit limits, consider doing it now versus later.
  • Ponder your working capital – accounts receivable, inventory and accounts payable – and how you can shorten the time frame from working capital to cash.
  • Conduct cash-flow analysis, with different revenue and operating cost scenarios. For example, what happens if revenue drops 10%, 20%, etc.? What operational costs can be adjusted to help mitigate the impact of these revenue reductions?
  • Categorize expenses into buckets and prioritize expenses for potential reductions. Some will be easy, some may require process changes and some will be extremely difficult.
  • Sure, conventional wisdom says to stop spending money. Despite the need to reassess unnecessary expenses and reduce costs, attracting and retaining talent remains a major concern and top priority. After all, you have to have the right people to sustain normal operations. As a result, organizations have to continue advancing talent-retention efforts – not retreat from them, despite a deterioration in economic forecasts.
  • Additionally, in some circumstances beyond talent retention, businesses actually should consider increasing financial investments rather than cutting costs:
    • To seize an opportunity to increase market share
    • To boost revenue
    • To enhance competitiveness (including participation in learning and development)
    • To realize much-needed efficiencies
    • To pick up key talent that may have been otherwise unavailable six months ago

Examples of a wise increase in expenditures could be related to forming a new strategic partnership, implementing a new technology system, training on a new skill or incorporating automation. Think of these as offensive, proactive measures, instead of defensive cost reduction measures, that will pay off over the long term.

  • Consider how to shift more expenses from fixed to variable. For example, could you change your staffing model to rely more on outsourced, contracted labor? Could increases in staff pay be in the form of performance bonuses versus raises in base salary? A PEO can discuss your options with you regarding talent-related expenses.

Keep employees engaged and motivated

As your business adapts to an economic downturn, don’t overlook the impact that these changes can have on employees – including their mindset, morale, productivity and engagement.

They hear the same economic news as business leaders and aren’t immune to:

Communicating openly and regularly

Remember this famous line? “The single biggest problem with communication is the illusion that it’s taken place.”

It’s critical to communicate with employees:

  • Honestly
  • Openly
  • Regularly

The appropriate level and cadence of communication can be tough to define, but generally share information as soon as possible and that:

  • Concerns employees directly. There’s a fine balance here. Give them enough information to understand what’s going on and why a change is necessary, but you don’t need to overshare and jeopardize long-term strategic plans.
  • Links macroeconomic factors to specific company decisions. For example, high fuel costs and exorbitant airfares means less company travel.
  • Assures employees that you are committed to them and their best interests.
  • Is honest – even if that means saying, “I don’t have the answer right now” or “I can’t share that information yet.”

Along with sharing information, solicit employee input as well. The more that employees feel you’re listening to them, the better their buy-in.

Good communication contributes to a sense of security, which is vital to calm that part of the brain that’s always scanning the environment to ascertain whether it’s safe and okay to focus attention elsewhere. Everyone wants to feel their safety and security needs are met before engaging with professional obligations at a higher level.

Otherwise, when people feel as though their company is withholding information and they’re not getting the full story, human nature is to connect the dots and fill in gaps in a manner that’s almost always more negative than positive. Any company wants to avoid the dreaded rumor mill, which is most definitely a drain on your work environment.

To aid in two-way communication with employees, adopt diverse channels and tactics:

It cannot be overstated how important frontline managers are to getting a pulse on what employees are thinking and feeling, and filtering down critical messages from leadership. Relationships with managers are the heart of any workplace culture.

Preserving workplace culture and values

Certainly, the decisions that business leaders make during a recession, and the priorities they focus on during this time, impact workplace culture. Employees will watch to ensure that leaders’ previous words align with their actions when things get difficult.

Because of that, it’s important to consider the cultural impacts of any business decision impacting your workforce, especially cutbacks due to financial constraints. What (unintentional) message is the program cut or benefit reduction sending to your workforce about the company’s priorities? Does a decision appear to depart from organizational values?

This underscores why communication is critical. You need to get out in front of any misunderstandings and clearly explain why the change is happening.

10 ways to sustain a positive culture during an economic recession

Aside from the big one – making sure communications are clear, timely and understood – here are some other ways to ensure company culture isn’t lost during a difficult economic environment.

  1. Ask for employees’ feedback on how to continue a certain program or benefit for the near term in a more budget-conscious way.
  2. Clarify that your values have not changed, nor has your commitment to employees.
  3. Set clear goals for employees to rally around.
  4. Explain to employees the purpose and meaning in their work, and how they make an impact.
  5. Foster connection and belonging through this shared experience. Remind employees of how the organization has weathered past recessions and describe the experiences that the team has overcome together during those times.
  6. Empower employees with more autonomy and flexibility to go forward and conquer what lies ahead.
  7. Encourage frontline managers to spend more time engaging with their teams. Although managers’ prioritization of their time with employees can tend to fall during difficult times, regular manager-employee engagement is the key to maintaining culture.
  8. Employees may have their own financial concerns and are wondering how the company plans to help them during times of inflation. Consider what you can do to ease employees’ financial burdens, and remind them of resources that exist to support them.
  9. Consider establishing an employee benevolence fund to give employees an opportunity to help each other.
  10. For the foreseeable future, employees will maintain their balance of power in the job market, which means that your company can’t ease up on efforts to retain employees. Think about ways to keep employees satisfied without adding to fixed costs through a total rewards program:

When employees are given the right information and support, they can surprise business leaders with their commitment, discretionary effort and resilience.

Difficult times can challenge culture, but they also present a unique opportunity to strengthen culture as well. It’s in times like these that leaders get to live out their company values and demonstrate their support of employees.

Summing it all up

Economic recessions often force tough decisions on businesses. Should we enter a recession period, it’s important for businesses to prepare now – not only take steps to protect the organization financially, but to do so without alienating employees or damaging workplace culture. This is especially important because we are still in the Great Resignation and face unprecedented talent shortages.

For more guidance on how to not only survive but thrive during a season of change, download our magazine: The Insperity guide to leadership and management.

Insperity guide to leadership and management
The Insperity guide to leadership and management
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