Nearly 75% of economists believe the nation will be in recession by the year 2021.
Almost more confounding than that is the fact that, while 80% of business owners fear an economic downturn, a mere 44% have done anything to prepare. Even then, an astounding 36% shared that they have no intention to make any preparations in the next 2 years. We can’t speak on their behalf, but it’s safe to guess that those 36% of business owners don’t have a full grasp of what they’re facing – here’s a breakdown.
What an Economic Downturn Could Mean for Your Business
As we near the end of one of the longest periods of economic growth, we sit on the brink of potential recession caused by an amalgamation of factors, such as possible trade wars, rising interest rates, a tightening labor market, and more. Despite this forecast being on the forefront of financial conversation for months, and even years, it seems that most companies have yet to act – a potentially grave mistake for businesses during an age of rapid innovation and development.
To retain your competitive longevity, it’s vital to ready your workforce for a downturn. This preparation can mitigate major damages down the line, sparing you from financial and legal strife. 1.8 million small businesses went under during the last financial crisis, from December 2008 to December 2010. To put that in perspective, there have been fewer than 400,000 comparable closures since 2014. Developing an action plan doesn’t require overhauling your current organizational structure, it’s simply a way to safeguard your company should you be impacted by an economic downturn. Start by implementing the following concepts in our 3-step guide for preparing your business for a potential economic downturn.
How to Prepare for an Economic Downturn
1. Review Your Operations
During the next financial crisis, your organization’s revenue could potentially plummet, likely forcing you to make spending cuts. Instead of hastily slashing expenses or executing lay-offs when your finances begin to wane, evaluate your costs now and develop a long-term approach for reducing expenditures.
- Monitor internal metrics. Aggregate data on KPIs related to your core business objectives, such as sales, productivity, and compensation. This information can help you to understand the effects that downsizing will have on your business. Furthermore, ensure that you consistently evaluate and document the work of your employees. Keeping these records serves a dual-purpose, both to assist you in making strategic business decisions and to safe-guard your company from potential legal issues down the line.
- Track ongoing initiatives. Run cost-benefit analyses on any training, development, and rewards programs that you currently offer, then determine which programs contribute the least value and ROI to the organization. Equipped with this insight, you can place programs on hold, or end them altogether, when the economic downturn threatens to impact your bottom-line.
- Evaluate basic costs. When was the last time you calculated the cost of your rent, electricity, or internet provider? Weigh the cost savings that downsizing your office space could have for the long-term. If possible, consider offering your employees work-from-home opportunities to cut those expenses even further.
- Strengthen invoicing processes. Some clients or customers may start taking longer to pay during a financial crisis, while others may never pay at all. To keep your organization’s cash flow and reserves in good standing, begin instilling preventative practices now. If you don’t already, check clients’ credit before offering terms, and continue to regularly monitor it throughout your partnership. Additionally, audit your current invoicing system to ensure that it’s effectively tracking and collecting overdue payments.
2. Embrace Flexibility
Another element of long-term workforce planning is improving the flexibility of your company. By assessing potential alternatives to your current structure, you can smoothly transition your organization into recession-mode without seeing a major hit to your profit.
- Allocate employees to different departments. After the Great Recession, one of the most common mistakes organizations shared was a “failure to recognize that the downsized company might not have enough people with the right mix of skills needed to grow after the [economic downturn] was over.” Optimize your business for success by re-assigning valuable employees; as opposed to laying off high-performing workers, explore other departments where their skills could be of greater use.
- Outsource non-essential roles. The contingent workforce has grown substantially since the Great Recession, due in part to the necessity for many to find work after being laid-off during that period. Lower your labor costs by moving ancillary employees from full-time to contract. By developing an agile outsourcing strategy now, you can seamlessly make the shift when your margins become too lean for comfort.
3. Be Straightforward with Your Team
Communication is mission-critical for your business during an economic slump. Employees are equally as concerned, if not more-so, about the organization’s health and the state of their livelihood. Tough times can prove to be the hardest to connect with your staff, but maintaining internal relationships is vital if you want to come out of the economic downturn in good standing.
- Remain transparent. Regularly inform your employees about the status of the company. While you don’t want to scare them into searching for a job elsewhere, they will respect the consistent updates, and you can avoid the repercussions that come with disgruntled ex-employees. This is especially relevant with the prevalence and overwhelming influence of social media – the impact of a bad review, even when unfounded, can be detrimental.
- Establish company-wide goals. Use this time to bring the members of your organization closer by setting overarching goals. For example, work together to develop and implement strategies to win the competition’s customers so you can continue to expand your client base despite the trying times. Win-win.
- Show appreciation & empathy. It’s important to show kindness to employees whose jobs are eliminated, as well as increased gratitude towards the staff who take on additional responsibilities in the wake of layoffs. Increased compassion may seem like an obvious detail, but it builds trust with your team and can boost employee morale when it’s needed most.
Ultimately, when the nation faces a difficult time, it’s paramount to remember that our economy regularly ebbs and flows. Organizations are faced with few options during a recession, a fact that most employees and clients more than understand. What they’ll remember above all else is how you handle your company, and relationships, as you navigate the murky waters of an economic downturn. By using this guide to prepare your business and curate a feasible action plan for an impending financial crisis, you’re sure to come out stronger than ever on the other side.
Skilled, flexible employees are going to be your secret weapon when an economic downturn hits. Whether you’re seeking full-time workers or contingent talent to augment your team, KORE1 can find exactly what you’re looking for. Let’s have a conversation about your business needs today.