How Your Organization Can Prepare for a Potential Recession
As 2022 draws to a close, businesses in nearly every sector are facing significant uncertainty. Many experts believe a recession is on the horizon, with some stating one will undoubtedly occur within the next 12 months. As a result, organizations need to prepare for what may lie ahead. Navigating a recession is challenging, though not impossible. By focusing on readiness now, it’s possible to safeguard assets and adapt to potentially reduced revenues. If you aren’t sure where to begin, here are some steps companies can take to prepare for a possible recession.
Plan for Diminished Cash Flow
High inflation is already straining company budgets, as materials and labor both come with higher costs than in previous years. If a recession occurs, then revenue typically declines, making a challenging financial situation harder. Couple that with rising interest rates and stiffer lending requirements, and ensuring sufficient cash flow is essential.
Companies shouldn’t wait to see how a recession may impact their budgets before making adjustments. Instead, start forecasting to get glimpses at possible outcomes now. That lets you know if difficulties are likely ahead, spurring changes today that could lead to a more manageable tomorrow.
As you plan your 2023 budget, consider using a multi-faceted approach. Along with a best-case scenario budget, create one for the worst potential outcome. Then, design one that falls in the middle, giving you a comprehensive strategy for any situation.
Protect High-Value Revenue Streams
When reductions are potentially necessary, it’s critical to make cuts strategically. In many cases, protecting your high-value revenue streams is essential during a recession, ensuring your customer base remains engaged and satisfied. As a result, it’s often better to make cuts in areas that aren’t bringing in the most revenue, allowing you to focus spending on core offerings with strong long-term track records.
Assess Customer Payment Habits
How your customers pay invoices becomes more relevant during a recession. While the occasional late payment isn’t as detrimental during solid economic periods, they’re incredibly impactful when your customer base is broadly struggling, and more of them fall behind.
Review your current payment terms to determine if contract renegotiations are potentially necessary. Additionally, consider whether any clients are likely to miss payments and if retaining their business is worth future collection efforts. Finally, reevaluate your process for extending credit to customers, especially those with questionable histories.
Evaluate Your Costs
When preparing a budget, look for opportunities to cut costs. This can include straightforward spending reductions or investments that result in improved efficiency, less waste, or reduced staffing requirements.
If you’re examining your workforce, don’t assume that all cuts would reduce your expenses. In some cases, cutting back leads to increased overtime to make up for fewer hands being on deck. Additionally, rising stress levels and burnout may increase turnover, and recruitment is typically more expensive than retaining your employees.
It’s also wise to explore alternative hiring arrangements that provide you with critical agility. Temporary employees can increase staffing levels during peak demand periods without the commitments and risks associated with permanent hires. Through a temp-to-hire program, you can conduct working interviews to ensure fit prior to extending permanent offers.
Looking for Further Assistance Controlling Costs in 2023?
If you want to control your workforce costs by using strategic hiring alternatives, Riverway Business Services wants to hear from you. Contact us to learn more about our talent acquisition and hiring programs today.