How Businesses Are Cutting Costs Ahead of a Potential Recession

The economy doesn’t appear to be in a very promising position at the moment. And while economists will debate about what’s likely to happen in the short-term, it’s hard to see a scenario where there isn’t at least a small recession. 

As a business owner, preparing ahead of time will help you weather this storm.

Powerful Cost-Cutting Ideas for Businesses

Most businesses wait until they’re already in a financial pickle to think about cutting costs. In other words, they wait until their balance sheets are out of whack, revenue is drying up, and their cash flow is suppressed. 

Unfortunately, it’s often too late in the game. By this point, the financials have already suffered a number of “death blows” and it’s difficult to recover without taking some pretty serious action.


If you’re serious about keeping your business healthy during a recession, you can’t wait until things go from concerning to bad. You need to proactively get ahead of what’s happening and prepare in advance. This allows you to address problem areas, store up cash, and put your business in a position to handle whatever is coming.

One of the most important things you can do is cut costs. Here are several ideas:

1. Kiss Discretionary Spending Goodbye

The very first step is to eliminate all discretionary spending within your business. This is the fastest way to rein in spending and get your finances on track.

What counts as a discretionary expense? Anything that’s non-essential in driving revenue or keeping your business operational. For example, renovating your waiting room with new flooring and fresh paint is not essential to generating revenue – so it’s a discretionary expense. 

The same goes for stocking the breakroom fridge with drinks and snacks; hosting an overnight team bonding trip; or expensing a business trip to San Francisco when you could just as easily have meetings over Zoom.

Most average-sized businesses have several thousand dollars of discretionary spending per month. The problem is that they don’t realize it. The sooner you recognize and expose these wasteful corners of your expense sheet, the stronger your financial position will be. 

2. Automate Time-Consuming Hourly Tasks

Take some time to make a list of the most time-consuming hourly tasks in your business. In other words, what tasks take your hourly employees the most time to complete daily? Once you have that figure, multiply it by the average hourly rate of these employees. The resulting figure shows you much you’re spending to accomplish these tasks.

For example, let’s say you have 10 employees who each spend 10 hours per week picking and packing shipments in your warehouse. The average hourly pay for each of these employees is $17. At 100 hours per week (10 employees * 10 hours), you’re spending $1,700 per week on picking and packing. 

Multiplied over the course of an entire year, this adds up to more than $88,000. This becomes your baseline. You know that if you can implement software or technology that allows you to handle picking and packing for less than $88,000 per year (or $1,700 per week), you’ll save money. 

It doesn’t matter what kind of business you run; there are opportunities for cutting costs. Company fleets, for example, can cut costs by streamlining mundane and time-consuming tasks like vehicle inspections, vehicle maintenance,  audits, warranty capture, etc. All you need is the right fleet maintenance software.

3. Join a GPO

Now is a great time to join a group purchasing organization (GPO). A GPO is basically a group of companies that come together to leverage their financial resources to secure discounts on products and services. 

On average, companies can save anywhere from 25 to 50 percent with group purchasing. Not only that, but it takes less time to research products and vendors (as the GPO already has a fully-vetted list).

The great thing about GPOs is you can immediately find better prices on things you’re already paying for. In many cases, you can realize hundreds or thousands of dollars in monthly savings right away.

4. Reevaluate Contracts

When a market softens and there becomes less demand for a good, the supply increases. (Or perhaps it’s more accurate to say that the surplus of available goods increases.) This could give you opportunities to reevaluate certain contracts you have with suppliers and negotiate better prices.

When it comes to vendors, be honest with them and let them know that you’re price shopping. Many companies have loyalty rewards and/or will lower prices to keep a customer from leaving. 

Now’s the Time to Cut Costs

Don’t wait until things have evolved to a point of no return. Acting quickly allows you to make important decisions before most companies have even considered the possibility that anything might be wrong. 

Nobody knows whether or not a recession will happen, but there are concerning signs. It’s better to act fast than to take no action at all.

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Jethro

I'm Jethro. I'm a carpenter, and love to build things! You can find me in the garage or at work most days of the week. My sister is Crystal, who you might know from this very blog. Her son Johnny loves video games just as much as I do - so we have a lot of fun playing together!

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