There is no point keeping your head in the sand. All the indicators are there. We have a perfect storm brewing with skyrocketing inflation, interest rates are on the rise and some businesses are already feeling the pinch as uncertainty mounts. Retail is down as Australians struggle to deal with the cost of living increases to staples like petrol and food. The real estate market also seems like it is about to burst with clearance rates at their lowest in years as many families are struggling to pay their mortgages as they near “stress test” levels on their repayments.
So many business owners are bracing and for us mass redundancies have already began for some of our clients. It seems that the USA and Europe are already experiencing a recession and if your business relies on these markets then you have likely been feeling the impacts.
So, what can you do to prepare for what is to come, apart for panicking and starting to make people redundant? Our recommendation is that cutting heads willy nilly should be the last resort (although many business owners use times like these to do a bit of a clear out of the proverbial dead wood) so we get why this is normally the go to strategy. But alas this should not be your ONLY strategy. We have the lowdown on a good process to get you thinking and focused on the right things so here it is!
Conduct a SWOT analysis
Times of crisis are all about planning and clarity. Don’t wait until its too late to act, we recommend that you should start preparing now and thinking about all the potential scenarios then you will be much better equipped to create a well thought our strategic plan on how to move forward.
The good old trusty SWOT analysis works a treat in these situations. Use this time to focus on fleshing out the following:
- What are we best at?
- What is our economic engine? I.e., what is the one thing we need to focus on to ensure we are sustainable and can continue to make money?
- How can we double down on this?
- What did we learn during COVID-19 that we can repeat this time around?
- What are we not best at?
- Do we have some products and services that we tried to focus on that we really suck at that aren’t really profitable?
- Are we flogging any dead horses?
- How can we stop doing these non-profit non-value add activities?
- Do we fail to drive performance and therefore carry many C grade employees?
- What opportunities does this new market environment provide?
- Is there any way we can capitalise on this situation to our advantage?
- Are there ways we can pivot to protect ourselves or capitalise on our strengths in new ways?
- How can we recession proof our business?
- What do our clients need most now?
- What are our blind spots that if we face the brutal facts we need to address?
- What are the market trends that provide insights and indicators into how our industry will be impacted? What has happened in the past?
- Are we resource heavy with huge inefficiencies that cannot be carried when revenues dry up?
We would recommend doing this activity with your Senior Executive team, if you need support and are on a retainer then one of our consultants can facilitate this process for you.
Conduct a Financial Audit
Once this is complete, we would recommend assessing your financial position with your finance team or CFO (if you have one). We also have an outsourced CFO option for you to consider if you need professional support. Understanding your Proft & Loss statement and being able to budget and understand financial models is one of the most important skills you will ever need to run a business. You should be across every line item in your P & L.
So as a start we would recommend going through your Profit & Loss ledger and asking yourselves the following questions:
- Are there any fixed costs that we could cut or remove with little impact?
- What does our cashflow look like? Do we have any issues how can we manage and mitigate this?
- Do we have any issues with debtors? Are people paying on time?
- Do we have any debt that we can pay off to reduce our liabilities?
- Do we need to implement price increases? Have our costs increased but we have been hesitant to pass on to our customers but now need to bite the bullet?
- How can we change our payment terms to protect the business? You may want to start getting clients or customers to pay up-front.
- Do we currently have subscriptions that we aren’t using that we could cancel?
- Are we using any consultants or contractors that are “nice to have” rather than value add?
- Are we planning any big projects or systems spends that we could put on hold?
- Looking at our variable costs how can we get really tough on this type of spending? Are there any items that we can get rid of with little impact?
- What are our biggest costs? Are we getting value from these? These could be office rental costs, your people costs, systems etc. It’s time to get brutal about every dollar you are spending and why?
- Ask the hard questions and be extremely discerning about what you need to stop, start and continue to start managing your finances with more care and diligence.
- Develop a new budget with some modelling on what will happen if your revenues decrease. Stress test your business. How many months can you pay wages if you start struggling? How many months are your prepared to make no profit or losses?
- Make a plan for different scenarios – it may be confronting but you need to go into this eyes wide open.
IF YOU FAIL TO PLAN – YOU PLAN TO FAIL!
Assess your people and your labour costs
We all know that when a business gets stressed financially its natural to start looking around at your employees and assessing am I really getting the best bang from my buck from the team? Who are my A grade, B grade and C grade performers and do I have any dead wood or dead weight that I could cut to reduce my costs. This strategy is often a snap reaction to an economic downturn.
Our recommendation is to not act too hastily but really think about the following before jumping down this road:
- Who are my A grade performers and how do I lock them in, so I don’t lose my best people if I start rocking the boat and cutting heads? How can I bring them in and create a culture of safety and stability to ensure they don’t run for the hills?
- Who are my B graders who are solid reliable and who I also need to run the business effectively?
- Are there any C grade performers or roles that a) are not adding value and are nice to have or b) were brought in on a massively inflated salary that are not performing at the level required that I could cut with minimal impact?
N.B our recommendation is that you ALWAYS performance manage people who are not performing. Making people redundant who are doing a bad job sends a really bad message to your team. You are almost rewarding their bad behavior with a golden handshake. We know this happens all the time and we get it – but not only is it unethical and unlawful it is also COSTLY. Especially if the people have been around for a long time. We highly recommend that you start managing these people now, we can assist you to do this. Performance management costs you NOTHING if it is done properly, you will be able to manage people up or out which is a much better outcome.
If you are wanting to do a restructure and make people redundant, we highly recommend you read our blogs on this topic first. This process can be executed really poorly if you don’t have the right advice and think about the impacts from every angle. We have done this in a 3-part series here =>
Redundancy the right way – Part One
Redundancy the right way – Part Two
Redundancy the right way – Part three
We have also developed a Redundancy Guide for Managers you can download it here. It explains the dos and don’ts includes and script and our top tips for doing it right,
- Could I implement a hiring freeze (meaning if people leave, we don’t replace them) to save on headcount? This would obviously need to be assessed on a case-by-case basis. If you were losing production employees – these are obviously not people that you cannot replace as they directly impact your output and capacity.
- Could we put a stop on all salary reviews or bonuses?
- If we don’t want to cut people (you may already be lean after COVID) some alternative options include:
- Asking all your employees to go down to a 9-day fortnight or 8-day fortnight
- Conducting a consultation with your team asking them for ideas on how the business could reduce costs and focus on increasing revenues
- Asking employees to take a pay cut (should be a last resort but may be an only option) many businesses did this in COVID and it worked
- Provide EAP and Financial planning advice and support to your people
Develop a strategy and action plan
Once you have assessed all angles of your business it’s time to make a plan, it’s a good idea to do this with your CFO with maybe a phased approach.
- Hold an employee town hall. Let everyone know you have conducted a SWOT analysis on the business and are preparing for an economic downturn and potential recession.
- Share the results – get their feedback you may have missed some things.
- Discuss potential impacts on the business – if you are considering redundancies be up-front about this. People want certainty and open and honest communication. This will build trust with your people.
- If you don’t want to make people redundant share this too – let them know you will be doing everything possible to protect their jobs, explain that this may include everyone taking a hit so that everyone gets to stay with the business.
- Share your strategy with the business around your plans to tackle what is coming ask for their support and understanding.
- Start implementing your cost cutting initiatives
- Continue to monitor your revenues and look out for trends
- If cashflow is an issue, then start exploring options to prepare for this. You could explore invoice finance, bank overdrafts, Amex Business accounts (you can spend interest free for up to 60 days.)
- Implement your restructure and redundancies if this is what you need to do
- Ensure you do some work to bring everyone along for the ride – this is achieved through regular honest and transparent communication. If your employees feel included and supported, they are much more likely to want to stay with you and ride the wave.
Continually monitor and adjust to your environment. Test and measure your initiatives. Share wins with your team to get them engaged and motivated.
The wrap up
In essence our advice is to be ahead of the curve don’t wait until it’s too late to act. It’s time to future proof your business and get fit for future.
It’s really important to know your financials and get really focused on your bottom line. Look out for red flags and don’t wait to act.
Keep communication open and be honest with people, the way you treat them now will be remembered. It’s easy to treat people well when things are good, but when things are bad it doesn’t mean, you can start treating your people like numbers.
If you need support with any of the above HR Gurus is here to help.
Written by Head Guru – Emily Jaksch