Why a Recession May Cause You to Think Twice about How Your Business Operates
We’ve discussed the preventative measures your business can take to weather the storm of a recession. However, what if the current recession has already affected your business, either through a decline in profits, a decreased headcount, or slower collections? When businesses are trying to stay afloat in an economic downturn, operational restructuring can be a rescue tool. Additionally, by maintaining timely financial reporting, you can both better analyze your business’ current operations and evaluate the necessity and impact of a restructuring plan.
If the recession has changed the normal procedures for your company, take a moment to reflect on the following questions:
- How can overhead costs be reduced?
- Are total employee hours necessary?
- Can jobs be combined to create efficiencies?
- What is our supply chain visibility?
- Are any of our service providers redundant?
- Can we outsource departments or roles that aren’t needed full-time?
- What alternate revenue streams can we look into right now?
Then, we recommend following the process described below.
Review the Expenses of your Business
During a recession, business owners should review their expenses and determine what activities or projects can be temporarily halted or shifted across resources—especially those that do not immediately contribute to revenue.
For the departments that do directly contribute to revenue, consider how you may shift operations so that each team shares the pain. This may mean reducing operations, asking for extended terms of payables, reallocating the budget, or stretching payments as far as possible.
Categorize Actions into Tiers
If you’ve determined that your revenue cannot support pre-recession operations, or if you’re looking to take preventative measures in general, categorize your action plan based on its impact. This could look like:
Cut your marketing budget by twenty percent if possible, eliminate non-essential travel, or put a pause on work that does not immediately impact revenue.
Furlough contractors, extend period of reduction for marketing expenses, eliminate overtime work, or increase the level of authority needed to approve expenses.
Reduce headcount, suspend or eliminate non-essential projects, restrict spending unless approved by the executive team, or defer bonuses.
Keep in mind that your action plan will depend on the size and industry of your business. Additionally, seek to be transparent about your decisions and how it will impact your employees. The way that you handle and communicate operational changes will be critical to maintaining productivity and morale.
To better evaluate your operations, determine the cost of each department or function by breaking down “cost per”—cost per head, cost per unit, etc. This quickly allows for analysis of any outliers compared to other departments and industry norms. It also highlights any inconsistencies in your budget or forecasting. Once cost is assigned, you can then determine what is necessary to serve your clients, maintain sales, and preserve as much revenue as possible.
When restructuring operations during a recession, you should also consider how to streamline your business’ processes. This could entail temporarily (or permanently) combining departments for higher efficiency. For example, adopting an aligned revenue operational strategy with combined marketing and sales (known as RevOps) can lead to 71% higher stock performance, 19% faster growth, and 15% more profits.
Combining and streamlining departments may become necessary during a recession. Visibility and analysis are key to making difficult decisions. Start by compiling an all-encompassing list of tasks that each department performs, including the necessary software and equipment needed to support those tasks. Then, take note of any redundancies or unnecessary tasks—these can either be consolidated or eliminated altogether. Finally, reassign responsibilities based both around the eliminated tasks and any layoffs or reduced roles.
Consider Automation or Outsourcing
Identifying areas in your business that can be automated or outsourced can help cut costs. For example, recruiting systems can routinely perform tasks, such as posting jobs, that can make the department more efficient or reduce the total number of hours needed to complete the work. Or, implementing a human resource information system (HRIS) can track employee analytics and provide ready-to-use reports to facilitate the HR workload.
Similarly, consider outsourcing the accounting department, or key functions of it. Contracting a CFO agency to employ fractional services, for example, can not only help you save on overall costs but also aid in building and following an operational restructuring plan. Fractional CFO services can help create your business’ overall strategy, while your accounting team can maintain day-to-day operations.
Track the Impact of your Action Plan
Once you’ve decided which actionable steps to take, tracking the impact of that plan will become crucial to the success of your business. Determine the time associated with your restructuring plan (one-time, on-going, etc.) so that future budgets, cash flow forecasts, and variance analyses can reflect these changes in the short and long term.
Finally, conducting operational risk assessments from time to time can help protect your business from unanticipated disruptions. This entails identifying risks, analyzing the impact of those risks, and determining necessary mitigating actions. In times when those mitigating actions need to be implemented, keep a detailed record them—they can help you be prepared for the next disruption!