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Prepare Your Workforce for a Recession and Other Undesirable Events.
Currently, there is much news creating tension globally. Russia invading Ukraine, high inflation, interrupted global supply chains, increased high cost of living, tumbling financial markets, and a recession is likely to happen, among others. These are some of the events that historically negatively impact businesses and the entire global economy.
Financial experts, commentators, and analysts have predicted that we will likely go through another recession soon in the last few months.
There is no standard definition of recession, but there is a general rule of thumb when defining recession. It’s where a country experiences a drop in its Gross Domestic Product (GDP) in two consecutive quarters and unemployment rates rise.
Have we started experiencing a sign of recession globally? To a great extent, yes. In recent months, some of the world's giant companies have already begun mass layoffs (at least 50 employees are laid off within 30 days). Among them are Netflix, Coinbase, Opensea, JP Morgan, Robinhood, MasterClass, Shopify, Tesla, and Vimeo. Additionally, various smaller companies have also experienced layoffs due to tough economic times. Some include Wave (a Stripe-backed African FinTech), StashAway, Unaacademy, Klarna, and Carvana.
Notably, interest rates have increased globally, thus increasing the cost of doing business and the cost of capital.
The World Bank notes that the global economic growth will likely slow down from last year's 5.5% to 4.1% in 2022 and fall further to 3.2% in 2023.
Despite the likelihood of a 2022 recession, it might not be like any other historical recession. Why? On mid-July 31, 2022, the Wall Street Journal reported that the unemployment rate is decreasing (more people are getting jobs), and millions of jobs are unfilled. Also, corporate profits are in double digits, and corporates have a significant amount of cash. So, is this sustainable while the economic output is gradually narrowing?
If the economy adjusts soon, most companies will significantly expand. However, if the contrary happens, employers have to lay off employees. Let’s explore how you can effectively prepare your workforce for a recession or undesirable events if they occur.
As outlined above, a recession is a downward trend characterized by a decline in employment and production in an economy. Also, it often strains household income and spending. On the other hand, depression is perceived as a more extreme version of recession. In brief, a depression is characterized by a sharp downtrend with a drastic reduction in industrial production, minimal international trade, widespread unemployment, and a decline in growth construction.
Another significant difference is that recession may occur in a single country/ region (geographically limited), while depression can occur across multiple countries worldwide.
An analysis by American Economic Association showed that the impact of the recession is felt across all social classes and races. However, it’s not uniform across demographic groups whereby youth, men, blacks & Hispanics, and low-educated workers felt the most impact.
Further, according to Yahoo Finance, millions of people lose their jobs. Those lucky to keep their jobs may get reduced hours and commission rates. Also, during a recession, employers tend to cut bonuses and raises.
Most businesses are affected directly or indirectly by a recession. Usually, no company or industry is 100% safe from an economic crisis. However, some companies survive and thrive in an economic downturn because of their operations and decisions.
Below are practical ways/steps (based on previous recession experiences) to prepare your company or business for a recession:
Financial experts suggest business owners should have cash reserved equal to about 6 to 12 months of operating cost of their businesses. However, the amount they should have as cash reserve is subjective, and people have different opinions.
Often recession leads to a budget problem for most companies. Therefore, having more cash enables them to improve the business's operating performance. More importantly, cash reserve may help obtain a higher market share than competitors.
It’s estimated that 82% of small businesses fail because of poor cash flow management. One of the best things owners can do for their companies is comprehensively understanding how cash comes in and how it's spent. Consequently, there is accountability, and they can easily adjust their strategy where needed.
Taking care of customers' needs is one of the best ways to grow business, retain customers, and attract more customers during a recession. Can these customers afford the products? Does the business have what customers need? What can be adjusted to satisfy an unfilled need? How can companies improve their customer satisfaction? These are some of the things business owners need to address. When customers are satisfied, businesses will likely retain them and get more referrals.
People often say, “Relationships are the new currency.” It’s quite applicable in the real world. Maintaining a relationship during a recession is vital for a business's survival.
Business owners need to proactively talk with their respective banks to discuss financing and how it could impact their business. Keeping contact with vendors will help ensure a reliable cash flow during tough economic times like a recession. A relationship with customers is a critical pillar in business, providing excellent customer service and making them a priority.
Business success depends on the marketing efforts invested. Therefore, it is not prudent to interfere with the marketing budget to cut down on expenses. Potential customers know about the brands, products, or services through marketing. More importantly, it’s an opportunity to educate people about offers and how they can be of value to them.
Having a productive workforce is very important. However, business owners or leaders have a significant role in building and maintaining such a team. When a recession is probable, employees are worried about their job security, wildly when news of companies laying off employees is trending. As a result, they might be unproductive, and their mental health may also be affected.
However, the business owners’ assurance about job security is vital. Additionally, motivating and having effective management practices can help businesses survive a recession.
During a recession, other companies fail, new market gaps open, and recent trends emerge based on consumer demand. As much as business owners believe in the conventional way of doing business, they should be ready to adopt and conform to what the market want. Such a strategy can significantly boost the growth of the company.
Most business owners and leaders face a hard time during a recession making some of the decisions that touch on the workforce. However, there are effective steps they can take to prepare employees for undesirable events such as a recession.
Building a diverse workforce is an excellent strategy for an employer and their workforce in times of hardships/crises such as a recession. Diversity of gender, race, age, ethnicity, and religion among the team(s) encourages inclusion, productivity, and performance. Above all, a diverse team is more resilient in times of crisis.
When there are chances of a recession, employees need the employers. They need to know what the plan for them is and need an opportunity to express their views. Having a channel for effective communication is critical. A communication strategy that is consistent and empathetic should be developed where none exists.
It's also crucial to be straightforward in communication. Telling employees everything is okay while it’s not can easily damage their relationship and trust. Being honest will ease their fears.
In times of economic downtrend, employee layoff is prevalent in most companies. While this is a demoralizing approach, at some point, it happens. As a result, it might trigger some discomfort among employees. Often, it’s good if layoffs are considered the last option.
However, if layoffs happen, they should be done professionally and respectfully. Also, it’s good to do it once and at a reasonable size.
Rather than interfering with employees’ benefits, employers may consider evaluating programs and doing away with some that are not in much need. It would be an excellent way to cut down costs.
It is vital to educate employees on how to enhance their personal finance and deal with a recession. Get consultants and experts to execute training on budgeting, investing, credit card debt, and savings, among others.
Employers need motivated employees if they want to get through the recession period. Therefore, they need to inspire them to do their bests and be part of that organization. Offer workplace flexibility, encourage feedback sharing, offer the employees room to grow, be respectful, and recognize their small achievements. These are just some of the best ways to inspire your workforce.
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