Popular opinion suggests that a global recession is coming. In fact, economic experts expect this to happen in the second half of 2023. If a recession does come, it probably won’t resemble the sharp and swift economic downturn that occurred during the pandemic. The onus will be on business leaders to make the difficult decisions that will keep their organizations afloat.
Fortunately, this hasn’t happened yet, and organizations still have time to prepare — something they should have been doing already. When you develop a plan to sustain your agency during a recession, you increase its resiliency and even put it in a position to turn a profit. Agencies of any size can make 20% profit — no matter the economic conditions.
To accomplish this, it’s necessary to take some preliminary steps.
5 Ways to Plan for a Recession
Here are some effective ways to recession-proof your business:
1. Run the numbers. While the natural inclination during a downturn is to start squirreling away cash, this can exacerbate a mistake that many agencies already make: keeping too much money in the business. Ironically, a healthy bank account can lead to emotional decisions when things go sideways. This is what happened during the Great Recession, when many agencies hung onto employees they couldn’t afford and caused their businesses to suffer as a result.
If this is your money, get it out of there and put it into other things. You can then choose to lend it back to the business if necessary. When it just sits there, the decisions you make are less intelligent and pragmatic than they otherwise would be.
In good economies, the rule of thumb is to keep at least two months of operating expenses and payroll plus overhead on hand. This is only if none of your clients exceed 20% of your AGI. If you have a client between 20% and 40% of your AGI, double that number. Any bigger, and your business will be in serious trouble if the client walks away. In a recession, you may want to add an extra month onto whatever the number you arrive at.
2. Reevaluate your rates. If you’ve been operating at the same billable rate for the last decade, you’re not alone. Most agencies are in a similar position, especially with long-term clients. Because it can be difficult to raise rates when the time comes for renewals, you should lock them in before an economic downturn occurs.
If you can lock in at a higher rate and for a longer period of time, even better. Consider raising your rates for new projects and new clients. Do the same with uncontracted and project-based clients. Many clients won’t even notice the increase if they receive a project or flat-fee price for services, but you should still discuss it with them.
3. Reassess talent. You should also start thinking about your talent needs. Make no mistake, this isn’t a recommendation to start making cuts — it’s a suggestion to start planning now. It can be very difficult to figure out a plan on the fly if something happens.
Rank your employees. Try to determine their value to your organization as objectively as possible. If you were to lose a client, you would already know how get back into the black.
At the same time, it’s important to invest in talent retention and acquisition. Whether pre-pandemic or post-pandemic, employees want to grow in their careers. The University of Phoenix’s Annual Career Optimism Index found that 52% of workers said they need to learn new skills within the next year to continue their careers, and another 68% said they would stay with an employer throughout their career if efforts were made to upskill them.
If you want to attract and retain the best employees, you need to invest in them. You know where they’re going next in their careers, so it’s important that you provide the development opportunities that will help them get there. Economic uncertainties shouldn’t prevent that.
4. Keep everything above board. As you run the numbers and make changes to your operations, people will begin to notice. Don’t hide the fact that the economic climate has made things challenging. The team knows that already, and your silence may cause them to think things are much worse than they actually are. The more you tell them, the more assurance you’re providing that the situation is under control.
That said, avoid doom and gloom. Offer hope. Share your vision for the future, talk through your strategies, discuss how you’re managing the numbers, and remind them that your business has weathered other uncertainties. Make sure employees understand that your agency is resilient and will survive the economic challenges it must endure. You run the business well and have built a solid client base. Now is not the time to shy away from this fact.
5. Prepare for elongated sale cycles. During a recession, the purchasing process is slower. For this reason, you should try to have more people in the pipeline and communicate with them more often. If you elongate the sales cycle, your agency will have clients in every sequence, and you will receive new business on a regular basis.
Don’t pull back on all your expenditures. There’s no guarantee that the competition is doing the same. Instead, be smart and strategic about how you invest your dollars, especially as it relates to your business development efforts. Polish off case studies. The goal is to thrive, not just to survive. it’s all about spending on those areas that matter. Besides, this could just be a blip — and the last thing you want is to find yourself behind the curve.