Out of the fire and into the fire: business spending strategies after the COVID-19 pandemic in a recession

It would be an understatement to say that small businesses have been on a rollercoaster ride in recent years. Covid-19 has left most companies in the dark that their only goal is to protect the business, the people (and their families) involved, and keep cash in reserve so they can hide and come out on the other side.
Now that we are finally out, we are facing the prospect of a recession. Jobs may be plentiful, but prices are rising for everything from natural gas to food. For businesses, rising production costs coupled with ongoing supply chain issues have seen many companies pass the cost on to consumers (hopefully this won’t impact demand).
Employees are facing soaring cost of living, making it difficult for businesses to retain their best employees without major pay changes. Otherwise, they risk losing it to their peers.
In such a challenging environment, companies need to prepare for both the best and the worst. While many peripheral indicators may resemble a pandemic, navigating such a complex market scenario requires a different spending strategy.
Here are five strategies leaders can implement to best manage their companies as they move from inflation to potential recession.
You want to keep your best employees. In addition to the value that comes from a long-term partnership with your company, the cost of hiring new employees is also getting more expensive. New employees with benefits can end up costing companies up to 40% of an employee’s base salary.
The entire process can take four to six weeks (or more) and months before employees are fully productive. To make matters worse, people are changing jobs faster than ever. With most people now working from home, traditional work relationship boundaries and buddy systems often hinder the transition, making it less efficient.
These factors pose serious challenges for small businesses as they simply don’t have enough bandwidth to quickly deal with the shock of a sudden loss of 5-10% of their workforce. Building (and maintaining) trusting relationships with employees is currently non-negotiable.
An effective way to gain the trust of employees is to be open about your financial situation. Many companies do not realize that the lack of transparency in a company’s operations is a major contributor to employee turnover.
Regular, honest discussions about what works and what doesn’t and what needs to be improved can help encourage employees to invest in the company’s success. In addition to open dialogue and encouragement, I recommend providing them with systematic performance-based incentives to share in the company’s success.
Instead of planning on hiring new employees, I advise small businesses to retain employees and keep them happy. We all need to save capital. However, if you absolutely must hire employees, look into the variable cost model. This allows you to hire contractors or service providers on a temporary basis.
This arrangement is usually made on a monthly basis, where the service provider agrees to provide the company with X jobs and Y employees. In this way, companies can get the employees they need without the additional costs and perks and benefits associated with training full-time employees.
Many large corporations already follow this principle, only adding people to someone else’s payroll. It also keeps companies from laying off existing employees just to save money.
Small business owners should not shy away from asking for help. It is clear that in such difficult conditions, small businesses need help. Whether you need support to grow your business, help with access to capital equipment, or just a liquidity injection, you should evaluate your support options.
Talk to your bank and look at options offered by the Small Business Administration that are designed for just that purpose and offer attractive rates. Small businesses must create cash liquidity. Even if they don’t need to use it today, at worst it will be there to ensure survival.
You also want to keep your business stable. It is extremely important to talk to your customers and make sure they are not considering cutting back on your service or their order. Your clients should not doubt your commitment to your services or the security of your finances, so make sure they know you have the right money, the right talent, and the right investments.
Whatever happens in the market or economy, your business must remain isolated. Negative market sentiment can be brutal even for companies that have flourished over the years. Make sure you have enough cash reserves to handle protracted situations. Ensure healthy cash flow.
Most importantly, plan ahead and write down a plan of action that you can take in a given situation. Talk to key business partners and employees so there are no surprises. People worry about all sorts of things, especially the financial impact on their own finances.
Market conditions are difficult to predict, and even experts are wrong. Perhaps we will survive a short-term recession, and the economy will soon return to prosperity. who knows?
However, one thing you want to avoid at all costs is that you can be caught off guard when you find yourself in a stagnant or negative market. As a small business, your ultimate goal is to strike a balance between frugality and sustainability. Don’t lose your best employees during this difficult time. Rejoice in the feast, but be prepared for the famine.


Post time: Oct-15-2022