It’s the word we keep hearing that sends a shudder down the spine. Recession.

It brings thoughts of redundancies, price increases, high unemployment rates and business closures.

We consider in this article how you can proof your business against the impacts of recession and the foundations you can lay to come out of the other side strong.

What is the current economic situation in the UK?

In the UK a recession is where GDP falls for two successive three-month periods (quarters). The economy shrank 0.3% between October and December 2023, following a fall of 0.1% in the period between July and September which means the UK economy officially went into recession at the end of 2023.

We last had a recession in 2020 during the COVID pandemic, lasting 6 months. Before that was 2008, where it lasted 15 months.

GDP is a measure of all the economic activity of a country, where an economy grows the GDP figure is slightly bigger than the previous period. Generally, when GDP is up people spend more, and are earning more, more taxes are collected, and the Government has more money to spend.

What are the negative implications of a recession for businesses?

When the economy shrinks, everything gets a bit of a squeeze, and taxes often rise to compensate for the loss of natural tax income.

For businesses this can mean that products or services become more expensive, tax bills rise, and even where there is no intentional wage increase, the effect of the annual increase in the National Minimum Wage presents an additional bill.

This year, the rise in NMW means an annual wage increase of £1,856.40 per minimum wage employee – across a 20-employee business, that is an expenditure increase of £37,128 not to mention the increase in NI and pension as a result.

Couple that rise with the price of utilities, insurance, raw materials and increases to costs in services, an SME could easily see their operating costs rocket by £100,000, which would cause any business owner to break a sweat never mind if business income drops as well.

A company that had previously enjoyed relatively healthy margins could very soon be looking at much tighter finances and depleted reserves.

What can businesses do to protect their business?

The first instinct is often to look at reducing workforce, though this may be necessary it is important to consider the matter as broadly as possible and look at a number of strategies.

Redundancies cost money and you are potentially removing your ‘money makers’. Where you are over resourced or have roles that are considered to be a luxury there may of course be hard decisions to make, but panicking and reducing headcount may not actually resolve all your problems.

Once you have removed staff, it can be very difficult to recruit again when your business economy improves, and the time cost of recruitment should not be underestimated. Where you have removed an experienced staff member who knew their job well and was settled in, the difference between them and a new recruit who needs to find their feet and may not work as effectively may be stark. Redundancies can also unsettle other staff who may be more likely to move if they feel that their position with you could be insecure.

How to recession-proof your business

Planning ahead is crucial, and considering other revenue options for your business that can make you more resilient to economic change. Act quickly where you need to but, ensure that your steps are well thought out and that you have considered how it will affect your business down the line.

Being decisive, and ensuring that you are looking at the full picture and not just a narrow view of your business is equally important.

Find the unnecessary expenses in your business, consider office space, renting out desks, nonessential perks that can be reinstated later, negotiate with vendors and service providers over payment terms and/or pricing.

Consider what you can do to be more competitive, can you improve your customer service and response rates, improve communication and customer advocacy, consider non-traditional marketing methods such as branching out into social media or explore whether there are alternative customer bases or means of reducing your acquisition cost.

Finally, communication with your staff is crucial. To avoid redundancy or restructuring staff may be willing to consider pay reductions, hour reductions or other measures to help you stay afloat, however, it is crucial you are seen to take the same measures for yourself and share the burden with your staff.

Communication is absolutely key, consult on proposals, alternatives and ideas and give your staff a voice – someone may even have an idea that can make a difference.

You can’t control when a recession is going to hit, but as you weather this one, consider what you and your business can do to insulate and protect against any future economic uncertainty to build your future resilience against such challenges.

Are you ready to be your workplace hero?