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Planning for Recession Cost Controls

No one likes “tightening the belt” in the economic sense. Although many of us think of ‘saving money’ in a positive light, no one likes the feeling that it’s something they have to do. However, when it appears there may be a recession on the horizon, it’s something that is very important to consider.


One of the most organized plans I’ve personally heard for cost controls when there may be a downturn coming came from another small business owner I know. It came up in a conversation we had in mid-2020 as Covid was having a severe effect on certain parts of the economy.


Basically, the thought process was to divide your expenses into categories.


  • Category 1: Expenses that may have some benefit, but that you could easily cut without much harm.

  • Category 2: Expenses that you feel are necessary, but that could be cut without harming the core of your business.

  • Category 3: Expenses that it will be painful to cut, but that you would do so if it meant saving the organization as a whole.

Category 1 expenses are items such as team lunches, non-integral marketing expenses, and expenses that you start to spend money on during good times, but that really aren’t core to the business. (A hint... you should probably look at cutting some of those expenses anyway 😊)

Category 2 expenses are items such as short-term or one-off marketing costs (sponsorships, etc), employee fringe benefits that are less valued, and other items that are necessary to some extent, but that won’t harm the value the customer receives from your product or service.


Category 3 expenses are the most difficult items to cut. This generally includes payroll costs, core benefits such as medical coverage levels or retirement matching, and sometimes even product offerings that aren’t your core business. No one likes to get to the point of cutting these items, and so it really should only be done in a last-ditch effort to save the organization’s existence. Cutting these costs can be damaging, but unfortunately necessary in some cases to save the company as a whole.


Once your expenses are divided into these three categories, then you determine at what point in sales decline or profit decline you would start to make cuts in each area. It sounds like a painful process, and it is, but it’s better than having no plan at all. Even though planning for such cuts may be difficult for your management team, knowing that there is a structured plan generally brings some relief to the team as they know you are going to do what it takes to preserve jobs first if at all possible. The opposite – not knowing if there is a plan or not – is far worse.


I hope you find this helpful, and I truly hope you don’t have to use most of the advice.


Until next time, I wish you the best in your business.


Mark Goldman

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