Effectively Managing a Slight Downturn
Published on by Jeff Hummel in Fractional Accounting
- There are several things you can do to guide your organization through a slight business downturn.
- Don’t rush to cut headcount. Determine whether the slowdown is temporary or signals a fundamental shift in demand.
- Turn downtime into opportunity. Use excess capacity to improve processes, increase efficiency, and prepare for future growth.
- Invest in your people. Cross-training, leadership development, and skill-building can strengthen your team for the next growth cycle.
- Find new revenue opportunities. Leverage existing equipment, expertise, and customer relationships without sacrificing profitability.
- Make data-driven decisions. Evaluate cash flow, workforce costs, and demand forecasts before making significant cuts.
Don’t Cut the Capacity You’ll Need Next Year
When revenue softens, the instinct is to cut costs: freeze hiring, reduce hours, delay projects, or lay off employees. Sometimes that’s the right call, but it shouldn’t be automatic.
The first question I ask a leadership team is simple: Is this a temporary dip or a fundamental change in demand? The answer should drive what happens next.
Not every slowdown requires cutting headcount
One of the most expensive mistakes I see is letting experienced people go during a temporary slowdown, only to scramble to replace them when demand returns.
Beyond severance costs, layoffs mean losing institutional knowledge, customer relationships, and technical expertise. Recruiting, onboarding, and training replacements can take months, potentially limiting your ability to capitalize on renewed demand.
If your balance sheet is strong, future demand looks promising, and the downturn appears temporary, retaining your team can be a strategic investment. But only if you put that capacity to work.
Turn excess capacity into an investment
Every growing company has a list of improvements that never get made because serving customers takes priority. A slowdown creates an opportunity to tackle them.
Focus on initiatives that will make your business more efficient and scalable, like:
- Standardizing processes and eliminating redundant steps
- Improving financial and operational reporting
- Strengthening internal controls
- Addressing recurring quality problems
- Each project needs a defined objective, an owner, and a measurable outcome. Otherwise, it’s just busywork.
At one of my companies, we used a temporary slowdown to refine our chart of accounts, consolidation, and reporting processes. When growth returned, those improvements helped us add revenue without significantly increasing costs.
Put direct labor to work on the floor
For manufacturers, excess capacity often means machine operators, assemblers, and production employees have time to address inefficiencies they understand better than anyone.
Consider projects such as reducing equipment changeover times, organizing work cells through 5S initiatives, completing preventive maintenance, rebalancing production lines, or addressing scrap and rework problems. Short, employee-led improvement initiatives often deliver lasting results.
The payoff can be substantial. If a machine runs six changeovers weekly at 90 minutes each, cutting setup time in half frees approximately 225 hours annually. At $150 per machine hour, that’s nearly $34,000 in potential additional production capacity, assuming demand returns and those hours can be sold.
One important accounting consideration: track improvement time separately from production labor. Otherwise, those hours can distort labor variances and product costs. Separate tracking also helps measure your improvement investment.
Build the capabilities you’ll need next year
When business is booming, experienced employees rarely have time to mentor others. A slowdown creates room for training and development.
Cross-train employees in critical functions, particularly where only one person knows how to run payroll, close a job, or program equipment. Reducing this key-person risk strengthens your ability to respond to changing demand.
It’s also an opportunity to develop future managers before the next growth cycle expands their responsibilities.
Find revenue in unexpected places
A slowdown in your primary market doesn’t mean opportunities have disappeared.
Look for ways to leverage existing equipment, expertise, and customer relationships. Manufacturers might bring outsourced machining, assembly, or finishing work in-house, or offer contract production using available equipment.
Employees can also use the time to strengthen customer relationships, uncover unmet needs, and identify future opportunities.
But don’t pursue revenue just to keep people busy. Evaluate contribution margins to ensure new work generates sufficient returns after its direct costs.
Put your capacity to work in the community
Non-profits often need professional expertise, operational support, technology assistance, or financial guidance they can’t afford.
Contributing available employee capacity can make a meaningful difference while developing leadership skills, strengthening engagement, and building community relationships.
Make technology work harder before buying more
Slowdowns can create valuable time for technology improvements, especially when employees who normally handle day-to-day operations are available for implementation and training.
But don’t automate a broken process or assume new software will solve an operational problem.
Often, optimizing systems you already own delivers a better return than replacing them. The objective is a more effective operating model, not a bigger technology bill.
Where to start this month
Before making major workforce decisions, take these five steps:
1. Classify the slowdown.
Compare six months of revenue, backlog, and pipeline against the prior year. Determine whether demand is temporarily softening or fundamentally changing.
2. Run the layoff math.
Compare the cost of retaining employees against severance, rehiring, onboarding, and lost productivity.
3. Build a 13-week cash flow forecast.
Understand your financial flexibility before committing to carrying excess capacity.
4. Establish decision triggers.
Agree on the backlog, cash, and pipeline thresholds that would require a change in strategy.
5. Choose three improvement projects.
Assign owners, deadlines, and measurable outcomes, and review progress monthly.
Prepare now for the next growth cycle
Not every company can afford to retain its workforce through a slowdown. Some will need to reduce costs or fundamentally rethink their business model.
But for financially healthy companies facing a manageable downturn, cutting shouldn’t be the only strategy.
The capacity you preserve and improve today could become your competitive advantage tomorrow.
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