The looming recession is on every business owner’s mind at the moment – and ensuring their operations can weather an economic downturn is becoming increasingly important.
But smart business owners know that recession-proofing isn’t a reactive measure – it’s a proactive one. Integrating innovative financial practices within your organization during the good times means it will be ready to withstand the bad times when they inevitably come around.
With that in mind, here are our top tips for implementing lean and agile strategic business processes into your operations to help recession-proof your business.
- Implement a low-overhead model
As they start out and scale, many businesses think it’s important to project an image of success to outsiders. This often means big fancy offices with expensive decor, furniture and artwork.
But lavish workspaces come with a big price tag that eats into profits, something financially-savvy business owners should avoid, especially during an economic slump.
While cutting costs seems like obvious advice when it comes to preparing for a recession, operating your business with minimal overhead costs isn’t about penny-pinching – it’s a mindset shift that involves taking a lean approach to monthly expenses. It’s about structuring your business in a way that’s sustainable in the long term, not just responding to a rapid fluctuation in the market.
Look for ways to reduce ongoing costs, like work-from-home options for employees, smaller offices, and discounted sublets on commercial buildings (which are abundant in a recession).
- Pay your people well
Headcount might seem like an easy place to cut costs when times are tough – and sometimes it’s certainly necessary.
But if there’s one area you should try and avoid when it comes to cost-cutting, it’s your employees’ salaries. Good employees can be expensive, but replacing them can be even more costly.
In fact, the cost of replacing an individual employee can range from one-half to two times the employee’s annual salary, according to a Gallup survey. And while retaining employees isn’t all about money, those who do feel well compensated are less likely to leave.
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Paying your people will help keep your retention rate high, and it will also help you attract the best talent in the market.
Don’t take reducing headcount lightly – it’s worth running a cost-benefit analysis on the long-term benefits vs. long-term risks before making any decisions about letting people go.
- Work with value-focused partners
When you seek out partners, especially professional service providers, the goal is to find ones providing services that are aligned with what’s in the best interest of your business, not necessarily what will make them the most money.
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Look for partners that have a reputation for providing value, and take a customer-centric approach to their offering. Creating these value-based partnerships means that your partners are looking for ways to help you save money in the long run, which is especially critical during lean times.
- Provide pricing options that offer cost certainty
Cost certainty is one of the best ways to recession-proof a business – for you and for your clients. So during a slowdown, be prepared to offer different payment options for your products and services.
Consider fixed-fee services, subscription models, payment plans, bundles and packages.
If you price hourly, consider selling 60 hours at a discounted rate of 50 hours. Offering discounts improves your chances of winning new business while offering guaranteed work and a cost reduction and cost certainty for your clients.
- Be prepared to pivot your offering
During an economic downtown, your customers’ needs and buying habits will change. The need for certain products and services will decrease, while others will increase.
Take Canadian escape room company Mobile Escape for example. During the economic slump of the pandemic, the company could no longer offer in-person escape room events. In response, they launched Escape Mail – escape room-style puzzles delivered to their customer’s doors. Demand was so overwhelming it eventually became a subscription service, which still exists today.
Consider how your business can adapt its offering to meet market demand and what your clients need during an economic downtown. Look at refocusing your efforts on the most profitable area of your business or developing new revenue streams.
- Consider fractional hiring
During any downturn, it’s essential for businesses that want to be lean and agile to freeze hiring and learn to do more with less. But even during a recession, you may find you need to bring on more staff to support the business.
Rather than increasing your headcount, consider fractional hiring. This is the practice of hiring an employee to work for only a fraction of the time a regular employee would work. This method has become increasingly popular for highly specialized roles like CFOs, CMOS and fractional in-house counsel.
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This flexible model allows business owners to increase or decrease the time fractional experts spend working within the business, and crucially, it allows both parties to part ways without paying out any severance.
- Explore opportunities to leverage new tech solutions
As a business owner, it’s crucial to take the time to scan the market to identify new solutions that can help optimize business processes and streamline operations.
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Look at where you can improve processes through automation and digital tools. If work is slow, find ways you can leverage technology to help cut down on manual tasks and reduce headcount in the long term. These processes may take a few months to plan and implement, but by the time you’re done, you’ll be prepared for any recessions in the future.
If you need help preparing your business for a recession, we can help. Our firm, made up of more than 85 qualified and experienced lawyers, is recession-proof by design – and we’d love to share what we know about building a resilient business with you. Get in touch with our team today to find out more.