CEOs Plan Recession Layoffs and Budget Cuts – Should You?

Big cuts are coming as CEOs prep for recession

Many business leaders are turning to the familiar recession playbook of belt-tightening. According to a recent KPMG survey, 91% of U.S. CEOs believe we are hurtling toward a recession within the next year, and two-thirds believe it won’t be a short one. 

One top target for cuts identified in the survey is environmental sustainability initiatives, with 59% of executives planning to pause or reconsider their spending. About half of CEOs also plan to fire employees, or in modern-day parlance, to “downsize their employment base.” 

Yet at the same time, 92% of CEOs also believe that their headcounts will expand over the next three years, and 70% say that green policies ultimately improve financial performance. How do we square these apparent contradictions? Let’s take a closer look. 

Avoid layoffs with these tips

The problem is that when times get tough, companies feel that they have no choice but to reduce investment. KPMG’s Rob Fisher observed that “it’s a classic moment of prioritizing short-term and long-term returns.” 

That’s why employers can simultaneously hope to expand their workforce while laying employees off, or believe in the long-term power of environmental sustainability to boost the bottom line while backing away from investments during times of economic uncertainty. 

While there’s no question that waste and inefficiency tend to creep into a business over time, there are some strategies you can adopt that don’t mean immediately cutting investment in your workforce and environmental programs. Consider these hacks to save money and increase cash flow so your business is well-positioned if the economic outlook worsens.

1. Negotiate with suppliers and landlords.

Suppliers and landlords obviously like to get paid on time. But when push comes to shove, they would prefer to get something rather than nothing. 

One way to improve your cash position is to renegotiate payment terms with suppliers. For most industries, the standard payback period for vendors is 30 days, although it may be possible to extend that timetable to 60 days or more if you have a good relationship with your supplier. You can also inquire about the availability of discounts and research alternative vendors who may offer better terms.

With commercial real estate in a slump, many renters have gained leverage over their landlords. If your business leases space, now is a great time to conduct market research and ensure that you aren’t overpaying compared to new tenants. You may find that you can score a sweet deal with a bit of effort. 

2. Leverage your existing customers.

Getting your customers to pay more for your products and services can be a balancing act. You don’t want to alienate your base, because acquiring a new customer can cost significantly more than retaining an existing one. At the same time, inflation means prices are rising, and yours may have to as well.

If you need to raise prices, best practices include doing so gradually and transparently. Explain to your customers why you need to raise prices, which helps create trust and willingness to accept paying more. Your existing customers also present an opportunity for upselling and cross-selling. Try to boost sales through customer loyalty programs and email marketing campaigns.

3. Cut waste and inefficiency. 

When a business is in fast-growth mode, entrepreneurs and owners are often more concerned with keeping the wheels from flying off the bus than maximizing efficiency. For example, maybe you ordered too much inventory that you are now forced to discount. Proper inventory management is essential to cash flow, and many of the best POS software solutions come equipped with inventory features or integrations. 

With the rise of remote work, many businesses have also found that they can now cut back or eliminate costly office space. Choosing a great video conferencing service like Zoom or a top business phone system such as NextivaONE will cost much less than renting real estate for your business. 

4. Secure short-term financing. 

If you’re in a temporary pinch, you may be able to secure a financial lifeline. Some small business loan and financing options from companies such as Biz2Credit and Rapid Finance offer loans that can be repaid over several months or years. Many require no collateral, although you often must personally guarantee the loan. For an otherwise strong business experiencing a temporary interruption, financing can provide some cover until the economy turns around. 

Breaking bad news the right way

Despite your best efforts, you may find that painful cuts to payroll or sustainability budgets are necessary to keep your business afloat. That said, you don’t want to be a jerk about it. In 2021, the CEO of mortgage lending startup Better.com abruptly fired 900 employees via Zoom – an ill-advised move that generated an avalanche of negative publicity for the brand. 

That’s an example of what not to do, but there are also ways to soften the blow. 

• Be transparent. Nobody likes disappointing news, but increased transparency can boost employee morale, even in tough times. During the 2020 COVID-19 shutdowns, the late Marriott CEO Arne Sorenson earned widespread praise for his straightforward yet compassionate message to employees. In an emotional video message, Sorenson clearly explained the grave impact of the shutdowns on Marriott’s business, noting that he had “never had a more difficult moment than this one” in his entire career. 
• Stay frugal. Awarding managers bonuses and other goodies is a bad look when times are supposedly tough. In 2021, Peloton faced backlash when it threw a lavish December bash for executives and celebrity instructors while canceling holiday parties for normal employees. On the other hand, Sorenson won praise when he voluntarily zeroed out his own salary and cut executive pay by 50%. 
• Offer generous severance. Many companies offer one to two weeks of severance pay for every year that an employee has been on the job. However, data from the Bureau of Labor Statistics shows that the average duration for unemployment is around five months. Employees in some industries will land on their feet faster than others, so take the job search process into account when thinking about how to structure a severance package. 
• Shift sustainability priorities. Although your business’s environmental sustainability budget may take a hit, some sustainability initiatives might actually save you money. Going paperless, recycling packaging, reducing energy consumption and cutting back on unnecessary travel are all ways to both slash costs and reduce your business’s carbon footprint while keeping costs down, so focus on these sustainability priorities during difficult economic times.

This too shall pass

No matter how bad things get, it’s worth remembering that most economic recessions are actually quite short. Since World War II, the average U.S. recession has lasted just 11 months. In the short term, a recession can be disruptive for many businesses and individuals, but that doesn’t mean business owners should abandon their goals. 

During the 2001 recession, which dealt a severe blow to tech companies, Steve Jobs said he told employees that “we were just going to invest our way through the downturn, that we weren’t going to lay off people … so that we would be ahead of our competitors when the downturn was over.” 

In the end, the sun will come up and growth will resume eventaully. Long-term thinking ultimately triumphs, and if you play your cards right, a recession can even present opportunities.