How To Recession-Proof Your Business And Reduce Layoffs

As a business owner, you might be unable to avoid an economic downturn completely. But you can control its effects by preparing for it in advance. How? Check out our comprehensive guide to get your answer.

Economists say business owners must prepare for a ‘mild recession’ in 2023. As consumers begin to spend less, the demand for a business’s products and services will decrease. It results in slower or even negative revenue growth for most companies. 

Businesses may eventually decide to reduce expenditure on goods or services they purchase. This will force suppliers to lower prices. These cost-cutting measures can entail layoffs for multiple industries. Ultimately, this snowball effect will lower demand because laid-off workers have less money to spend.

But with all the turmoil ahead, the effects of a downturn can be significantly reduced. With effective planning, you can safeguard your business and your employees. This can include better cash flow management, revenue protection, and strategic demand generation.

Are you ready to start preparing early to recession-proof your business? If your answer is yes, we cover all you need to know in this guide. 

How Does A Recession Affect Your Company?

> Lesser Demand:

A lower volume of orders is likely one of your company’s early recession indicators. This is because a period of ambiguity typically occurs before a recession. Your customers will be reluctant to purchase more products during this time. Long-term contracts will be less appealing to them. It could also lead to the cancellation of current orders to cut costs.

> More Cost-Effective Supplies:

On the other hand, your suppliers may also experience lesser demand. This means they can complete your orders more quickly and possibly even at a lower cost. If you know how to recession-proof your finances and have cash and credit flow, you can negotiate good deals on supplies. So long as they aren’t perishable, there may be an opportunity to stockpile inputs for the future at a lower cost.

> An Opportunity To Improve Your Workforce:

Workers will respond to the uncertainty as well. They are aware that a recession could mean layoffs. This will prompt them to work harder to avoid termination. Instead of letting the fear persist, use it as an opportunity to cement strong relations. Be open and honest with them about the current conditions. Let them know that you are working on getting past the economic slump with alternatives to layoffs. Encourage them to pick up new skills or suggest innovative ways to thrive in such a situation. This will help keep them positively engaged with your company.

Contrary to popular belief, the time leading to a recession can have a few positives. However, don’t turn a blind eye to negatives. For example, when demand declines, you don’t want to find yourself with excessive stock. 

Always pay close attention to the early indicators of a recession. These begin well in advance, prompting business owners to proceed cautiously. Small businesses, in particular, need to be on the lookout. According to a 2022 study, 75% of small businesses are already starting to see the effects of the current inflation. 

While there is no such thing as a recession-proof business, there are recession-proof practices. Implementing them in advance can help you stay afloat even during a crisis. If you want to know how to prepare your business for a recession, here is how to get started.

Top 7 Steps To Recession-Proof Your Business: 

1) Analyze The State Of Your Company

Consumer spending and available capital may fall in the months before a recession. It can add pressure to a company’s budget. This is where you need to pause and analyze just where your business stands. And ask yourself, what are the most pressing problems you need to address?

This is essential because it implies that some challenging decisions must be made to recession-proof your business. It can be about product price, marketing strategies, benefits, and even new launches. 

These are some of the most common problems businesses of all sizes may encounter:

  • Often the goods or service budget is the first place entrepreneurs try to find wiggle room. Businesses will be tempted to reduce the size, quality, and benefits of the product or to raise the price. They will tweak some product features to provide flexibility in the operational budget.

  • Insufficient funds can affect the workforce’s pay. Businesses may need to find a way to continue with plans for business growth. In the face of this, the ultimate cost-cutting for small businesses will be to lay off employees or reduce pay. This includes not giving bonus payments or stalling promotions.

  • A culture of anxiety can develop as a result of workforce reduction strategies and layoffs. This can lower productivity and morale among employees. And unmotivated employees can further hamper the survival of the business.

The most excellent approach to take on these difficulties head-on is with data. The metrics may indicate that your business is struggling. But it is crucial to evaluate what that says about your daily operations.

Try to ask yourself the following questions:

  • Are there any areas for improvement in your service or product offerings?

  • How much skill can we now afford? How much can we push people?

  • What resources are necessary to maintain or increase output?

2) Make The Change

It’s time to make improvements now that you’ve located the problems in your company. Your company will become more robust, thanks to the upgrades. This might comprise:

  • Assessing goods and services to make sure your customers’ needs are being met in the market

  • Changing benchmarks and anticipated growth goals

Only some issues can be resolved right away. Decide which concerns have the most negative potential for your company. Analyze what issues can affect customer retention in the event of a recession. Or what can be damaging to company culture and brand reputation. Then preemptively take measures to reduce the risks arising from these.

Here are some changes you can implement:

  • Personnel: Could the non-essential worker be transferred? Or is job sharing a suitable remedy? This can help you understand how to cut costs without laying off employees when money is tight. It can also ensure efficient workflows wherever talent is in short supply. 

  • Products and services: Eliminate products with low-profit margins or no profits. Consider the amount of labor each product requires. Check if low-margin items consume most of your employees’ time. If yes, your profitable products would be a better place for them to spend their time.

Your staff may need help with these adjustments. It might be challenging to have uncomfortable conversations with employees. But don’t keep information regarding layoffs or other changes away from your team. 

By being open with your team, you can stay ahead of rumors. Your employees will appreciate it if you are honest about the company’s future. Be compassionate while having conversations, and encourage their input on how to cut costs without laying off employees.

Additionally, these changes could make the public more aware of your situation. By handling and managing it properly, you can establish a positive image of your company. It can also instill confidence in your customers, as they won’t sense internal conflict.

3) Maximize Your Talent

When a recession hits, it can be difficult to bring in new talent. So, to prepare for this, think about how to make the most of the team members you already have. 

  • Find untapped leaders in your organization and encourage them to take the lead. Is there somebody you and your company can rely on when things get tough? Who is the individual with critical thinking and problem-solving skills? Which individual displays strong managerial capabilities? Encourage these top performers to assume additional responsibilities.

  • Track and identify essential talents using metrics. Recognize who is on the sidelines and decide if they can take on additional responsibilities. By doing so, you can start to cross-train your team members and further recession-proof your business.

  • Ask your leaders, influential people, and everyday workers for input regularly. Their in-depth understanding of the business can inspire creative answers. It can help solve systemic or workflow issues that may have skipped your attention. Engaging your employees in this manner can maintain productivity and strong morale.

4) Expand Or Diversify Your Services:

Diversifying your sources of income is one of the best methods to fight an economic slump. It aids in reducing your risk in an unstable environment. In other words, don’t depend entirely on one employment for revenue.

Determine how your business can expand its products or services. Perhaps you can add a new product range to an existing product line. For example, if you sell soaps and body washes, try exploring more body care products. Shampoos, face washes, and more are popular consumer products that can increase your revenue.

You can even offer up a new service as an additional feature of your business. For instance, if you are a painter, you don’t have to restrict yourself to applying paint alone. You can additionally offer roofing, carpentry, mold removal, etc.

5) Know Your Potential Sources Of Capital:

You might not need a lot of capital now. But the same can’t be said when a recession hits. The best way to stay prepared is by understanding how to recession-proof your finances.

  • Check out the loans backed by the Small Business Administration. These generally have lower down payments. Plus, you might not need to provide any asset as collateral in certain cases.

  • If you don’t prefer traditional bank loans, no problem. There are tons of other great funding options for small businesses to take advantage of. These include venture capitalists, partner financing, angel investors, and more.

  • Don’t forget to build up your personal and business credit score. In times of recession, lenders often hike up their lending standards. This is why establishing a good credit score now can position you as a trustworthy borrower later. Don’t forget to get a business credit card and make all payments diligently. Keep all your financial documentation in order so it is easier to take a loan when needed.

  • Create your own financing option by keeping an emergency cash fund aside. This should cover utility, payroll, and other costs for up to six months during a financial crisis. You can build this pool by managing your cash flow now. Send out invoices and collect receivables promptly. If certain clients are delaying payments, it’s wise to resolve the issue instantly.

6) Don’t Cut Back On Marketing:

It might seem counterproductive to invest in marketing during a time of cost-cutting. But if you don’t build a loyal customer base now, you won’t have buyers during a recession. It’s also a way to get a leg up on your competitors. This way, you can build a niche and offer something unique that your competition can’t.

Take a long hard look at your marketing strategy. Analyze if your value proposition needs to change due to current market conditions. Explore paid and social media marketing to generate new leads for your company - and convert them effectively!

7) Don’t Forget Your Existing Customers:

While bringing in new customers is essential, this can be particularly hard when consumers lower their spending. In fact, 5 - 25 times more expensive than retaining an existing customer. This is why you also need to focus on your current buyers. They are your safety net when trying out recession-proof strategies. Plus, it is easier to cross-sell and upsell to them as they are already familiar with your brand.

Use this time to cement a strong relationship with them. Keep them engaged with your brand by prioritizing customer experiences. Have regular (but not pushy) follow-ups and ask them how they feel about your services. Implement feedback wherever needed to improve your offerings. 

The goal during a recession is to generate revenue while spending less on driving sales. Your customer base is a great way to achieve this. So cater to their needs to ensure they stay loyal to your brand even during an economic crisis.

Gear Up To Ride The Recession Wave

Small firms are most likely the first to experience difficulties during recessions. But a large portion of the unknown may be eliminated by planning. Don’t go into crisis mode when a recession strikes. Instead, take every chance to evaluate the state of your company and implement the best strategies to recession-proof your business. Provide leaders with training, productivity, communication, and risk management tools.

For many firms, recessions can also present a fantastic opportunity. Your business can discover a silver lining during difficult economic times. It can be done by investing in down markets or paying off low debt levels during inflationary periods. More solutions could be tightening processes and enhancing corporate efficiency. 

Follow these steps diligently not just to survive but also to thrive in a recession. And if you need more resources or expert advice, you can always visit our blog. From getting started on your business to marketing operations and more, we have everything you need to be a successful entrepreneur.

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