​How can a prairie CEO and their leadership team plan in advance to reduce staff expenses if needed during a potential recession?

Last week, I shared how to prepare a scenario plan to prepare for a looming recession due to the ongoing trade war.

Part of scenario planning is determining in advance what changes you would make to the business for each of three potential scenarios (worst case, best case and middle case) to be proactive about protecting and optimizing the business.

This includes, if needed, identifying any expenses that would be cut. In this kind of scenario, planning to reduce non-staff expenses may not be enough to protect the business.

So, how can we plan to reduce staff expenses while retaining great talent to ramp up quickly when things pick up again?

Some ideas our coaches and clients have chosen or considered in preparing for previous downturns include:

• Asking staff to take a voluntary pay cut with senior managers making a bigger, committed sacrifice? Plan to repay salaries afterward if possible, with interest, again, if possible.
• Reducing all staff to 80% time.
• Having people take all their leave and/or holidays while things are slow.
• Letting people take leave without pay as much as they want.

Look at things from a long term perspective. And the key is to explain in detail why you’re taking a certain approach and sharing all the other actions you’re taking to protect the business.

If ultimately you had to plan to reduce staff, who would you remove and who would you keep? It’s best to know this in advance and be prepared to act swiftly when needed, as letting people go can otherwise be something that is avoided and drawn out, significantly affecting the company’s financial health.

• Use a values-performance talent assessment matrix to identify A players to keep and what B players to keep to develop. Plan to make adjustments at the C and D player levels.
• Plan to let A and promising B players know you want to keep them to encourage them to not look for work elsewhere out of worry for their future.
• In extreme scenarios, a business may go into hibernation and pivot, hibernating their current business while creating a new business that works in the new environment. In this case,  plan to keep the people that would be needed to take you forward with the new business.

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Plan the staff expense reductions for any scenarios that need it, in order to be prepared to take swift action, to conserve cash, protect the business and protect the most jobs possible.


For other ways to navigate these challenging times with confidence, get the free complete Trade-War Success Guide for Small to Mid-Size Companies below.

​How does a prairie CEO and their leadership team go about scenario planning?

As discussed in my previous video and article, as long as tariffs are in play or looming, a recession is a very real possibility in Canada for late 2025 or early 2026.

So how can you be prepared to weather or take advantage of a downturn. Enter scenario planning.

For those less familiar with scenario planning, this practice is about:

1. Envisioning more than one scenario that could play out;
2. Making rational decisions for each scenario in advance of a situation deteriorating, so that we can trigger and execute wise decisions if/when that time comes, rather than reacting emotionally and making knee jerk short-term-focused decisions that hurt the business long term;
3. Making wise decisions and preparations now, which preserve or create options for the future considering those possible future scenarios, eg. setting up back-up suppliers or avoiding perilous cash outlays; and
4. Identifying potential opportunities to grow the business as customer needs and buying patterns change.

The process for scenario planning includes the following:

1. Frame your scenario planning:

• Identify and define realistically plausible scenarios for the duration and depth of potential recession:
  • What do we believe is the best case scenario? What’s the best that demand could be from current and new customers, and what added demand could we see if any opportunities we identified in the trade war work out well?
  • What do we believe is the worst case scenario for the year? What’s the best that demand could be from current and new customers and if any opportunities we identified in the trade war don’t work out?
  • What is the middle case scenario? What’s the more moderate, in-between scenario that could play out? What would that demand be from current and new customers and if any opportunities we identified were partially successful?
• Base your scenarios on credible, trust-worthy information, like central bank forecasts rather than retail bank forecasts.

2. For each realistically plausible scenario above…
 
A. Consider the logical/realistic impacts on your current stakeholders:

• Suppliers and Customers – for example, changes in their business dynamics, and financial profile
• Employees – for example, roles needed or not needed, their likely perceptions, needs and emotional and mental state

B. Will those stakeholder impacts be positive or negative for the business, and how will you respond?

• If positive, how will you adjust your operations to make the most of the opportunity?
• If negative, how will you adjust your operations to address those stakeholder needs if the scenario plays out?

C. Fleshing out of scenarios over time can also include:

• What other actions will you need to take under those three scenarios to address the needs/concerns of each of these stakeholders?
• What will you need to communicate to each stakeholder as soon as possible under each scenario?

D. You may want to start at a high level with the worst realistically plausible scenario and then flesh out the best case and middle case in more detail over the following several weeks. Or you may start with the middle, most likely scenario first and flesh out the best and worst case scenarios afterward.

E. Use a living plan document, with a timestamped “best current view”, and adjust as needed.

3. Have your finance and accounting leader prepare 3 budgets, one for each of these three scenarios (worst case, best case and middle case) and what needs to be done in each to achieve breakeven.

• How much revenue decline can we cope with and when to take action?
• What supply chain lines are going to impact our revenues and when?
• How can we reduce costs? What expenses can we cut to extend our cash runway?
• How can we involve others in the company in our efforts to find expense savings?

Sometimes, certain scenarios may have such a negative impact on your business that reducing non-staff expenses may not be enough to protect the company, and planning to cut staff expenses needs to be considered. More on that next week.


For other ways to navigate these challenging times with confidence, get the free complete Trade-War Success Guide for Small to Mid-Size Companies below.