Recession Considerations for Business Owners

The word "recession" can strike fear in the heart of any business owner. During a recession, businesses of all sizes can face challenges that threaten their survival. Whether you are a small business owner or manage a larger enterprise, it is essential to be prepared for a recession and to understand the steps you can take to mitigate its impact on your company. 

Read on to explore key considerations that business owners should keep in mind during a recession and some practical tips on how to navigate this challenging economic environment. 

Tightening Your Budget During a Recession

Small business owners can face many challenges during a recession, including reduced demand and declining revenues. To weather the storm, it's essential to tighten your budget and cut costs where possible. The first step in reducing your costs is to review your expenses on a regular basis. Take a close look at your budget, and identify areas where you can cut excessive spending. 

Additionally, ensure that you are focusing on essential spending when making a budget. Prioritize expenses that are critical to your business's operations, such as rent, utilities, and payroll.  This may require you to adjust your business plan by putting expansion plans or hiring on hold. Make sure you can stay afloat before accruing additional costs.

Liquidity is also crucial during a recession. Without access to funds to pay vendors, small businesses may be forced to shut their doors. Be sure to regularly monitor your cash flow and adjust your spending as needed to guarantee that you will not run out of cash.

Stimulating Growth in Uncertain Times

During a recession, exploring new revenue streams can help offset declining sales. You may want to consider diversifying your product or service offerings or expanding into new markets. Employing a new business model could also allow you to grow your profits or your customer base during a recession. 

However, depending on your industry, it may make more sense to streamline your existing offerings instead of adding new ones. For some businesses, it may be more cost-effective to focus on popular and high-profit-margin products while reducing your stock of less lucrative items.  

A recession could also change the demand for certain products. Your business’ profitability may be best served by adjusting purchasing of the affected offerings to reflect changing market needs. 

Managing Layoffs During a Recession

The unfortunate reality is that recession economies often force employers to reduce their workforce in order to keep the business alive. However, when managing layoffs during a recession, employers must consider a number of legal concerns to ensure compliance with various labor laws and regulations. 

One of the most important legal considerations for employers conducting layoffs is compliance with the Worker Adjustment and Retraining Notification (WARN) Act. This federal legislation requires certain employers to provide advance notice of layoffs and plant closings in order to give workers and their families time to prepare for the impact of job loss and to seek new employment or retraining opportunities.

Under the WARN Act, covered employers must give affected employees and their representatives at least 60 days' notice before a plant closing or before mass layoffs occur. A "mass layoff" is defined as a reduction in force that affects at least 500 employees at a single site in 30 days or at least 50 employees in a 90-day period when the layoff applies to at least 33% of employees at a single site. 

If employers fail to provide the required notice under the WARN Act, they may be liable for back pay and benefits for each affected employee for up to 60 days, as well as civil penalties.

Employers must also comply with anti-discrimination laws when conducting layoffs. To do so, employers must not only confirm that their layoff decisions are not discriminatory based on protected characteristics such as race, gender, age, or disability, but they must also consider whether layoff criteria has a “disparate impact” on a protected class of employees, even if the policy for determining who is laid off appears to be neutral on its face.  

Other legal compliance considerations employers should keep in mind when planning layoffs include unemployment laws, wage and hour laws, COBRA, and any existing contractual obligations they have under employment contracts and collective bargaining agreements. 

Develop a Strong Relationship with a Business Lawyer

Given the myriad of concerns employers must navigate when conducting layoffs and attempting to manage the other unique legal issues that arise during a recession, it is crucial for employers to consult with experienced employment law attorneys to ensure that they are in compliance with all relevant laws and regulations. 

Although some businesses may be hesitant to accrue legal fees during a recession, building a solid relationship with a knowledgeable business lawyer can ultimately save you from costly penalties for failing to comply with the law. Additionally, developing an ongoing partnership with an attorney that truly understands you and your business can help your business thrive while also protecting you from the legal and financial consequences that can come from even inadvertent mistakes that could violate state or federal laws.