Main menu


How to survive a recession in your business

featured image

Opinion holder entrepreneur Contributors are their own.

No one likes recessions, but being prepared can soften the blow. The first step is knowing how to read the signs. Not necessarily a sign of the economy as a whole, but of your business in particular. Next, you need a strategy for managing production and sales. Staffing planning is especially important.

Fortunately, today’s executives have more options than ever to manage risk during uncertain times. Here’s how to prepare yourself, your business, and your team.

RELATED: How to prepare your business for a recession

How do you know when a recession started?

The term “recession” does not have a truncated definition. Broadly speaking, it means an economic recession. Government agencies and many private organizations rely on the non-profit research institute, the National Bureau of Economic Research (NBER), to label recessions in official statistics. The NBER generally defines a recession as a severe, sustained and widespread decline in economic activity, with the exception of short and particularly sharp recessions such as those early in the pandemic.

A major feature of a recession is a decrease in demand for goods and services. Households, businesses, and governments don’t buy that much. As a result, businesses may find themselves needing to cut costs to break even. We may also have to reduce production capacity. This could mean facility closures, reduced input orders, and reduced labor costs.

In the macro economy, these effects lead to lower household incomes and lower corporate profits. So the sooner a recession arrives, the better. However, the NBER only shows the timing of recessions months after the recession began and possibly months after it ended. Moreover, the label “recession” does not change anything about the state of the economy.

The important thing for owners and managers is to determine what the recession means for you. It’s about deciding what a serious and sustained downturn in your business is, how you can prepare for it, how you’ll change your strategy until it’s over, and how you’ll seize the opportunity after that. end?

RELATED: Economic downturn creates opportunities for savvy entrepreneurs

What does a recession look like for your business?

The first sign of a business downturn is probably a drop in orders. A period of uncertainty almost always precedes a recession, making customers wary of buying more goods and services than they need. They are less willing to sign long-term contracts and are more likely to cancel existing orders.

Conversely, it may be easier to stock inputs. Initially, suppliers may also begin to perceive lower demand, so they may be able to fill orders more quickly and possibly at lower prices. The situation will disappear. As such, there may be an opportunity to stockpile inputs at lower cost for the future, as long as they are less perishable.

Workers also react to uncertainty. They may be less likely to quit their jobs because it will be harder to find new jobs. Some try to perform at a higher level so they can keep their jobs during layoffs. They may also accept fewer or less frequent raises for the same reason.

Perhaps paradoxically, the period immediately preceding a recession can be the most profitable and productive of the entire business cycle, but don’t let that fool you. You don’t want too much input or too much inventory of your products when industry demand drops. The signs should be carefully observed and treated with caution until the uncertainty is resolved.

RELATED: ‘One recession expected in 2023’: U.S. economy remains uncertain

How to prepare for a recession

Traditionally, the most effective tools for dealing with economic uncertainty have been embedded in the supply chain. Since the 1970s, “just-in-time” manufacturing has relied on supply chains that anticipate input needs and ensure inventory matches demand on a daily basis. But these supply chains bring the raw materials, intermediate goods, parts, and energy companies need for production. They don’t deliver workers.

That’s why workforce planning is so important. When companies face a drop in demand, they may put their employees on unpaid leave or lay them off entirely. Firms must hope to be able to replenish the same positions when the economy recovers and demand recovers. They have to go through a costly and time-consuming recruitment process at a time when the labor market is just beginning to tighten.

Meanwhile, workers still employed have to pick up the slack. Government statistics show that labor productivity typically spikes after a recession, requiring less labor to produce more goods and services. In fact, the extra pressure on workers could create tensions with employers, reinforcing the wave of unionization already sweeping the economy. Overworked employees may easily quit when new opportunities open up in the labor market.

Some companies are trying to avoid this labor market whiplash by retaining workers even when demand for their products is slowing. At this point, American companies have near record amounts of cash on hand, and retaining employees could help build long-term loyalty. But public company executives who retain their employees can lose heat from investors who expect very disciplined spending, especially during a recession.

Another strategy is to force employees to work part-time. The number of workers working part-time for economic reasons, not preference, typically spikes during recessions. However, these workers may leave their jobs if there are other full-time opportunities. In times of high gas prices, face-to-face workers may also choose to quit their jobs rather than commute the same distance for half the pay.

RELATED: Yes, it’s possible to prepare your business for a recession. Here’s how.

Benefits of flexible working

In contrast, we find that companies that embrace flexible working are better positioned. These companies are using online apps like Upwork, Toptal, and Instawork to fill their workforce and adapt to changing staff needs in real time. They typically hire mostly full-time employees, hire extra workers for specific tasks, shifts, or longer assignments, and worry about having extra workers or furloughs in the future. No need to. You can also save a roster of workers in the app who have already received the necessary training and are best suited for your job.

These apps are part of a transformative economy that is ultimately helping workers catch up with other just-in-time inputs to the production process. Fills up within 12 hours. Shifts in the service sector take a little longer, but still average less than 24 hours. A supervisor can decide in the evening how many workers are needed for the next day, and qualified personnel arrive in the morning. No need to call your agency or veterinarian in advance.

Flexible work also provides a “try before you buy” opportunity for employers to test relationships with large numbers of workers before making permanent employment. These employers will be ready to increase salaries when the economy starts to recover. In fact, companies were eager to hire professionals they found on Instawork during a hot labor market in the first half of this year.

Related: 5 Ways to Keep Your Company Growing During a Recession

seize the opportunity

A recession is a moment of economic turmoil and change. Opportunities abound for well-prepared companies. Seizing the opportunity means keeping cash on the sidelines during boom times, and thinking well beyond the end of the recession into the next economic cycle.

  • employment. Companies tend to lay off part-time workers and least needed staff first. But when a business goes bankrupt, even the most important full-time employees lose their jobs. You may be able to recruit talent that was previously unhirable, possibly at low wages. Workers who still have jobs may also be available at lower wages. However, you need to save enough cash to increase your headcount.
  • input. Struggling suppliers are keen on orders, especially long-term contracts that ensure business viability. If you are confident enough in the sustainability of your business, you may be able to secure low prices that look even better during the next boom.
  • market share. When a company goes bankrupt, its market share is taken by competitors. In an industry with loyal customers, this is a rare opportunity for companies that respond quickly and decisively to marketing and outreach. In an industry where customers are motivated by price, you may be able to gain market share by undercutting your competitors, even if they all stay in business. With less cash on hand, it becomes harder to match prices. And customers with tight budgets are sure to appreciate the discounts.
  • Acquisition. Most companies would rather acquire than shut down entirely. A recession is usually the best time to buy complementary businesses or your own competitors. Hunting for bargains can pay off big when the economy recovers.

It can be difficult to maintain the discipline of setting aside money for opportunities like this. Investors typically expect profits to be reinvested or distributed as dividends. But recessions still happen. Then a little foresight and preparation can go a long way.