If there’s any industry naturally attuned to the ebbs and flows of a fluctuating economy, it’s the staffing and recruiting space. When the economy is booming and close to a full-employment market, recruiters go into overdrive helping clients connect with hard-to-reach talent. Reversely, when we near a recession, many staffing firms’ clients hit pause on adding more headcount. With the stock market’s recent unpredictability and economists predicting a recession is close on the horizon, how do you make your staffing firm recession proof? We break it down below.
Know the Signs
Though some warning signs have begun to crop up, there is no exact recipe for what will cause the next economic recession. However, there are various circumstances that have contributed to previous recessions worth watching:
Economic Bubbles – Whenever there is excessive speculation in a specific market well beyond its intrinsic value, there are bound to be large scale ramifications. Currently, there are speculations about which bubbles will burst next, but we won’t know the precise catalysts until we’re looking back in hindsight.
Interest Rates – Though interest rates change for a variety of reasons, certain patterns can signal an approaching recession. In fact, the arc of the yield curve, which shows the interest rate paid for bonds of different securities, can be a yellow flag for businesses watching for signs. Though not a definitive indicator, most of the recessions since 1975 have coincided with a yield spread (the difference between bond yields of varying maturities) that has been low or negative.
High Debt Levels – Some of the economists who predicted the last recession point to high debt levels as an indicator of future recessions. Their findings show that employment levels and credit relative to GDP often synchronize. Currently, US debt levels are at record highs and the Chinese economy is at bubble levels, which together could have worldwide repercussions.
One key consideration to keep in mind is that an economic slump is not a recession until it has persisted for two consecutive quarters. That means that even if some of these signals appear, there’s no need to panic – just prepare.
Contingency Plan
Each recession contingency plan will vary depending on a staffing firm’s size, industry verticals, and geographic location, but all firms should keep the following in mind while preparing for a recession:
Evaluate Possible Scenarios – An effective recession contingency plan explores various “what-if” scenarios and potential solutions. What if your largest client cuts back on temporary placements and revenue decreases by 45%? What if workforce demand for a staffing vertical drastically drops and one of your divisions is on the verge of closing? Preparing for each scenario improves response time and lowers the financial impact of each issue.
Securing Positive Cash Flow – How long is your staffing firm prepared to operate with diminished revenue? Run projections in advance to determine how many months you can continue to cover individual employee and program costs. By establishing a contingency fund and understanding the upper limits of your budgets, it’s easier to rein in expenses and maintain solvency for the duration of the recession.
PREMIUM CONTENT: Preparing for the next recession
Identify Your Most Profitable Recruiters
Staffing firms are even more dependent during a recession upon their top performing recruiters to continually make placements and prevent profit margins from shrinking. When some staffing firms are faced with downsizing their onshore workforce, an emotional decision to keep junior recruiters with low KPIs and layoff offshore recruiters with high KPIs can be all too appealing to avoid hurting team morale – that’s not always the right choice.
During their recession preparation, one of our clients on the Staffing Industry Analysts Top 50 list did their due diligence and compared the performance of onshore and offshore resources to find the perfect balance for their team. Crunching the numbers, they found an interesting phenomenon: Offshore resources produced double the ROI compared to their budget, while their onshore team proved to be more of a cost center.
When times get tough, successful staffing firms will invest in resources that deliver the highest ROI. For many, like our client above, this often means expanding the headcount of their offshore recruiting teams to supplement their onshore resources.
