A recession is coming in the next year. Probably.
At least, that’s the tentative consensus of top U.S. chief financial officers, according to a June 2022 survey by CNBC. Nearly 70% of survey respondents expected a recession to occur during the first half of 2023, citing inflation and Federal Reserve policy as likely catalysts.
Focus less on the probability of a recession in a particular month or even year and think about how … [+]
The next recession—if it comes—is likely to last longer and feel different than the recent pandemic-induced recession. The coronavirus downturn was sharp but very short, thanks to hundreds of billions in federal stimulus funds; no such help is coming this time around. It’ll fall to business leaders to make difficult and possibly painful decisions to stay afloat.
But the sky isn’t falling. Preparing now for the recession that’s (likely) around the corner will put you in a stronger position when the time comes and could prevent the need for truly drastic, reactive measures. Begin with these four action items.
1. Automate (And Simplify) Time-Consuming Business Processes
A lot of repetitive, low-value back office work is required to keep your business running. Automate whatever you can:
- Hiring and Onboarding Employees: Use an automated solution that distributes the same job posting across multiple high-visibility platforms, from LinkedIn to Indeed to industry-specific job boards. And using a talent acquisition solution makes it easy to track individual applicants, regardless of volume.
- Paying Employees: Incorporate payroll software that takes the manual labor out of payroll runs, calculations, and tax filings. Ditch paper checks and require your employees to accept direct deposit too.
- Managing Employees: Implement a self-service HR platform that automates paid time-off requests, qualified plan changes, benefits administration, and other formerly time-consuming people management processes.
- Managing IT: Roll out a self-service portal for basic IT service management as well—freeing up your IT team.
- Bookkeeping and Financial Reporting: Reduce your reliance on in-house or external bookkeepers and accountants with an enterprise-grade accounting platform that helps you track revenue, expenses, and liabilities at scale (and makes tax time less of a headache).
Each of these solutions has one thing in common: It’s cheaper than the manual, human-driven process it replaces. That means less overhead in a revenue-starved recession.
2. Reassess Your Hiring Plans
You might be sure a recession is coming, but you wouldn’t know if from the U.S. jobs market. Firms continue to hire at a breakneck pace, and average jobless claims actually declined in August and September of 2022.
To gain an edge in the talent market, you’ll need to invest significant resources in your recruiting and onboarding operations. That’s not prudent heading into a potential recession.
Instead, pare back—or at least reassess—your hiring plans. For each planned hire, ask:
- Do we need to add a full-time equivalent employee here, or can we find slack among existing employees?
- What will this department or function look like in six or 12 months if we don’t add this person?
- Can technology, automation, or better process management replace or augment this function?
Use the same tests for each planned and unexpected departure. Chances are, you can find capacity within your remaining workforce to replace departing employees, at least temporarily.
3. Bulk Up Your Contract Workforce
For the planned hires and departing employees you can’t replace with existing capacity, technology, or simply making do, look to contractors. It’s much easier to scale up (and scale back) contract teams, and far cheaper to onboard contract workers.
For high-value or core functions, such as IT systems management, lean on skilled-workforce staffing agencies that can supply onsite or remote talent for longer durations (at least six months, or until the completion of the project they’re working on).
For peripheral or auxiliary functions, such as website development, use global talent platforms to tap lower-cost labor pools abroad. Do the same for non-core support functions that can be done remotely, such as live chat or phone support.
4. Create a Multi-Scenario “Downturn Plan”
Finally, put together multiple “downturn scenarios” as part of a pre-recession strategic plan.
These scenarios should be both more comprehensive and more tactical than traditional business plan scenarios. They should anticipate specific “macro” and “micro” circumstances, such as “a severe, 18-month recession that reduces revenue by 40%” or “a mild, six-month recession that reduces revenue by 10%.”
Your downturn plan should also cover what comes next. What does your company, your customer base, your industry look like five years from today? And what steps do you need to take now to recover any lost ground when conditions improve?
A Recession Is Around The Corner, Or At Least Down the Street
Economic tea leaves are difficult to read in the best of times. Amid all the macroeconomic and geopolitical uncertainty we’ve seen this year, predicting a future recession—or its absence—feels like an impossible task.
The solution: Focus less on the probability of a recession in a particular month or even year and think about how you can prepare your business for its inevitable arrival. Each of these action items—from automating time-consuming processes to bulking up your contract workforce—will help your business get through lean times.
