There has been plenty of debate recently as to whether the U.S. economy is in a recession or not. While great minds disagree on this, we all know it is tough out there right now for business owners and companies. So the real question is, how should business owners fortify their companies to endure both current and future challenges?
Inflation is at a 40-year high with no signs of slowing. According to the U.S. Labor Department, the annual inflation rate was 9.1% in June, up from 8.6% in May, which was up from 8.3% in April. Ouch.
Consumer spending is being hampered by a one-two punch. First is this soaring inflation, followed by back-to-back interest rate hikes of .75 percentage points each. Some economists are speculating a full percentage point increase this fall. So while money might still be available, it might be harder to get and just costs more.
Then there is employment. Wages are up. Hiring is down. And employees are arguably harder to come by than ever. Then as we were getting used to all those employers starving for labor, companies big and small are implementing substantial layoffs.
- Peloton laid off 2,800 employees
- Real estate giant Redfin laid off 470 people, 10% of its workforce
- Coinbase announced plans to reduce its workforce by 18%
- Online car dealer Carvana laid off 2,500 people or 12% of its workforce
Colorado employment has been affected as well. While the State’s unemployment rate has steadily dropped from record high pandemic levels and currently sits around 3.50%, some local employers have been announcing layoffs as of late. Most recently, Metco Landscape cut 343 workers across the Front Range. Right now, big layoffs haven’t significantly affected the Denver market, but those cuts could be on the horizon if things don’t turn around on a national level soon.
Then of course there’s the troubling supply chain, volatile oil and gas costs, the war in Ukraine, the substantial cooling of the real estate market. Wow, right?
The point here is that this thing is real. It’s local. It’s global. It’s affecting every industry. Even if you think that your business is immune to all these negative factors, you would be wise to consider that your customers or vendors might not be. So either way, you need to prepare.
What Business Owners Can Do Now
Okay, enough of the gloom and doom. Now for the solutions.
Taking a proactive approach to the current economic threats is not only prudent for the short term, but an incredibly smart way to fortify your business now and into the future. And it starts and ends with business owners proactively leveraging the dynamics they can control.
Your employees, vendors, and customers are looking to you for leadership. Neither panic nor non-preparedness will help them or you. Remain calm. Stay steady. Plan ahead, make decisions, act decisively. Waiting it out is simply not an option.
Communication Is Key
Be sure that you and your leadership team communicate your approach, outlook, and strategies to your employees. Otherwise, people tend to speculate and, for the most part, they tend to assume worse case scenarios. So get ahead of the chatter with constant, consistent communications.
- Communicating with Employees. Share with them what is happening, why you are making the decisions you are making, what lies ahead, and definitely share your wins! Reinforcement is important.
- Communicating with Operations. You need your Ops team now more than ever. Ensure that they understand expectations and provide them with specific measurables and activities, which may differ from previous versions.
- Communicating with Other Key Stakeholders. It is crucial to nurture relationships with your vendors, customers, bankers, etc. Let them know what they can expect from you, and consider what you need to ask of them.
Yes, cash is king. So it is your responsibility as the CEO or Owner of a business to make sure you have sufficient cash, at least six months’ worth on hand.
Consider conducting some cash flow scenario planning. What situations might occur that could impact your cash positively and negatively? What recession conditions might impact cash-on-hand? What can you do to secure additional cash if needed?
A recession may impact your close ratio, lengthen a sales cycle, and perhaps even spur customer losses. Remember, you want to come out of the recession poised with some good opportunities, so be proactive with your sales strategy. Make sure expectations for your sales team are clear. Be sure to measure the right metrics, which may change during a recession.
And don’t forget to project positivity! Let the sales team know that the entire company is there to support them and help make them successful.
You may also want to review and revise your marketing and messaging.
This is already a huge challenge for a lot of us conducting business in the post-Covid era. But how might a recession further impact your supply chain?
For every piece of material needed, understand where it originates and the journey it takes to get to you, as well the cost of getting it from place to place. This knowledge can help you navigate workarounds and forecast holdups. Be sure to consistently keep an eye on product demand and adjust accordingly. Know the warehouses or distribution centers in which products are being stored along the supply chain and how much inventory is in those various locations.
Diversify suppliers and know what alternatives are available. Build relationships with all your suppliers and learn what they are doing to manage through a recession.
Evaluate Pricing Options and Strategies
Knowing how to price can be challenging, even more so in a recession. How often have you increased price in the past and how much were those increases? Certainly the cost of doing business increases in a recession, but how much of that do you pass on your to your customers? If you are cost-plus pricing, perhaps it is time to look at value-based pricing or usage-based pricing. Or flat-fee or hourly pricing.
The good news is that, while business owners are certainly exhausted by the myriad of negative market dynamics of the past few years, they are truly wiser for the wear and best poised to tackle the next hurdle, whether it be a recession or whatever else gets thrown at them. And something always will.
Blair Koch is the CEO of TAB Denver West, a TAB CEO Advisory Board Facilitator, and a Business Ownership Lifecycle Coach. Blair has spent most of her career helping small business owners achieve their personal and professional goals. She also hosts the Best Businesses in Denver podcast.