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5 Powerful Ways to Protect Your Business Better From a Recession
As recession risks increase, many business leaders are turning their attention to recession planning and cost reduction strategies. In this article, we explore 5 powerful ways to protect your business in an economic downturn.
As we look ahead to the coming year, it's clear that many businesses will be facing harsh economic conditions. The risk of a major recession is higher now than it has been in over a decade, and rising interest rates and inflation are likely to impact business spending significantly. To prepare for these challenges, many business leaders are turning their attention to recession planning and cost reduction strategies. In this blog post, we will provide you with 5 powerful strategies to better protect your business from a recession and in times of economic downturns in general.
What Is A Recession?
In the world of economics, a recession is a period of economic downturn distinguished by a decline in Gross Domestic Product (GDP).
Recession is often caused by various factors, including an increase in the inflation rate, a hike in the interest rate, decreased investments, and excessive debts. Natural hazards like the COVID-19 pandemic also worsen a recession and affect the global economy massively.
The impact of a recession on businesses can be devastating, as it leads to a significant drop in consumer spending, lower sales, and a decrease in profits. As a result, many businesses may struggle to stay afloat during a recession, leading to layoffs and closures.
How to Protect Your Business Better from A Recession?
The past few years have taught business leaders that constant uncertainty and disruption are here to stay. Preparing for a recession by having a contingency plan and making strategic decisions to weather the storm would be crucial for companies to survive economic downturns and sustainably grow.
In addition to taking quick measures, there are 5 powerful strategies that your company can take to ready itself for an economic downturn and emerge stronger in the future.
1. Understanding Your Organizational Structure
Analyzing and understanding your business through an organizational design approach helps you make informed decisions and prepare for economic uncertainty. This could be done by creating an interactive organizational chart, conducting and managing predictive analysis, as well as workforce analytics.
- An org chart helps visualize your organization's structure and ensure clarity in roles and responsibilities. An interactive org chart that is easy to use and integrates seamlessly with your underlying system helps you better understand your people data and increase operational efficiency.
- Predictive analysis studies historical data and uses it to predict future trends for your business. This can support you in making informed decisions based on data-driven insights, allowing you to stay ahead of the competition and adapt to changes in the market.
- Workforce analytics provides in-depth insights into headcount and it's cost. It helps businesses understand what they need for the future, plan their budget better, and decide where to hire more people.
Ultimately, having an org chart, predictive analysis, and workforce analytics can help you make data-driven decisions about your workforce and improve organizational health, leading to better outcomes for both employees and the company as a whole.
2. Develop A Cost-Reduction Plan
Maintaining cash reserves enables businesses to continue operations, pay employees, and cover expenses even if their revenue decreases. Cash reserves also protect businesses during economic downturns. They can use this to their advantage and spend more time developing new directions and game plans.
In addition to finding ways to increase efficiency, another major factor to consider is downsizing the workforce. Yet, this should be your last resort. Some other cost reductions you can consider are:
- Software subscription expenses: can be decreased by cutting non-essential software, negotiating contracts with vendors, limiting new software purchases, converting monthly plans to annual to generate savings, and negotiating payment terms.
- Rent and office costs: can be reduced by renegotiating leases. You can also consider offshore contractors and employees to reduce office costs.
- Marketing and advertising expenses: can be reduced by reviewing the Return-On-Investments (ROI) of all campaigns and assessing their effectiveness. You might want to focus solely on primary channels and rely on scalable marketing channels such as content marketing and SEO.
- Headcount costs: can be reduced by cutting non-technical roles, reducing middle management, capping salary increases, outsourcing to new locations, and freezing hiring.
- Other miscellaneous expenses such as travel, dining, and other employee expenses can be reduced by trying to do more with less.
During a time when finding and retaining talented employees is highly competitive, it's best to exhaust all other options before considering workforce reductions. However, if necessary, it's critical to approach the process strategically to avoid negatively impacting your business's future. Rather than focusing on reducing headcount, workforce optimization based on skills and job responsibilities is the better ideal. This process, also known as "rightsizing," ensures that you have the right people in the right roles at the right time, maximizing efficiency and minimizing unnecessary job losses.
3. Making Data-Informed Decisions
When market conditions are constantly shifting and unpredictable, it is crucial for organizations to carefully assess all available information before making any major decisions. Failing to do so can result in costly mistakes, missed opportunities, and a loss of trust and confidence from stakeholders.
That's why businesses need to avoid making uninformed decisions and base their evaluation on solid data and analysis. Data-driven insights help companies understand how to allocate their headcount, develop effective strategies, and identify areas for improvement. Taking advantage of headcount modeling and spend forecasting software like Agentnoon can give you a comprehensive overview of your headcount and ensure greater success in the long run.
One way to do this is by modeling different cost-cutting scenarios. By looking at the base, best, and worst-case scenarios, you can get a better sense of the potential outcomes of your decisions. Additionally, conducting a trade-off analysis gives you an understanding of each scenario's pros and cons. You can also consider the impact on the overall burn rate and cash flow to make a more informed decision that will benefit your business through the economic uncertainty.
4. Updating Your Business Continuity Plan
Adapting to changing circumstances and mitigating potential risks can make all the difference in keeping a business afloat. A solid continuity plan should include a detailed analysis of potential threats, as well as a clear roadmap for how to respond to each scenario. While it may be tempting to cut corners or overlook the importance of continuity planning in tough times, investing time and resources into a comprehensive plan can pay dividends in longer terms.
Having a solid plan is one thing. It's another thing to ensure that it can withstand unexpected challenges and changes in the market. Stress testing involves putting a business strategy through various scenarios to see how it holds up under pressure and helps businesses stay on track to achieve their goals. This can include testing assumptions, analyzing risks, and identifying potential vulnerabilities that may not have been considered.
Developing a robust communication plan can also ensure that everyone is on the same page and prepared for the changes ahead.
- It's essential to identify who needs to be communicated with and how. This may include both external stakeholders and internal team members.
- From there, consider the impact that these measures may have on company culture and employee morale.
- Finally, sequencing the implementation of these measures can help ensure that they are rolled out in a way that minimizes disruption and maximizes effectiveness.
5. Keep Monitoring Your Org Health Regularly
Regularly monitoring your organizational health can prepare and protect your business from economic downturns.
One way to do this is by tracking progress against your financial targets every month. Frequently checking in on your financial performance can identify areas where you may need to adjust costs or make other changes to keep your organization on track. Whether you're facing unexpected challenges or want to stay ahead of the curve, keeping a close eye on your finances is key to ensuring the long-term success of your organization.
The risks of a major recession are higher now than in over a decade, and businesses must be prepared to weather the storm to survive and emerge stronger. By understanding your organizational structure, developing a cost reduction plan, making data-informed decisions, updating your business continuity plan, and monitoring your organizational health regularly, you can be better equipped to protect your business from a recession and successfully navigate economic downturns.
Schedule a demo call to understand how Agentnoon can help you visualize your people data, supercharge your workforce planning with data-driven insights, and prepare your business for responsible growth!