How Do Recessions Impact Businesses? 9 Tips To Prepare

Talk of an impending recession can send both business leaders and individuals into fight-or-flight mode as they look for effective ways to reduce spending and boost savings. While the effects of a recession on business can be significant, organizations that understand how a recession affects businesses and build a proactive plan to adapt their business strategy can be better positioned to successfully weather economic downturns.

If you’re looking for immediate tips to prepare for a recession, you can jump ahead. To effectively prepare, learn more about what a recession is and how they affect businesses. 

What is a recession? 

A recession is a temporary period of decline in economic activity, for a few months or even years. A recession is often indicated by two consecutive quarters of negative gross domestic product (GDP) growth, which can also lead to implications such as business challenges, job losses, and reduced consumer spending. 

Previous U.S. recessions include the Great Depression (1929-1941), the Dot-Com Recession (2001), the Great Recession (2007-2009), and the COVID-19 Recession (2020) 

You may be wondering, “Are we entering a recession?” or “Are we going to have a recession?” While some indicators point to the possibility of a recession in 2025, this doesn’t always mean a recession will occur. For example, while many expected the U.S. to face a recession in 2022, the economy only saw negative GDP growth in Q1 2022 and GDP actually grew by 0.3% in Q2 2022 and steadily thereafter. 

Some indicators of a softening economy or potential recession in 2025 as of this writing include:

• Chief Executive’s CEO Confidence Index found that in March 2025, CEO confidence was at the lowest level since November 2012. Additionally, almost half (48%) of CEOs surveyed believed the U.S. would face a mild or severe recession over the next six months.
• According to The Conference Board’s Consumer Confidence Survey, consumer confidence declined for the fourth consecutive month in March 2025, reaching the lowest level since January 2021. The data also shows that in March 2025, consumers’ short-term outlook for income, business, and labor market conditions declined to the lowest level in 12 years and significantly below the index’s threshold that typically signals a recession.

Source: The Conference Board

5 ways recessions impact businesses 

An economic recession impacts each company differently, but many organizations across industries—from small businesses to large businesses—face many of the same challenges. 

Common effects of a recession on business include: 

1. Reduced cash flow
2. Decreased or no demand
3. Hiring freezes and staffing reductions
4. Operational changes
5. Price wars

1. Reduced cash flow

Both businesses and individuals reduce spending and face challenges with making timely payments during a recession, which often leads to reduced cash flow. A small business may face more immediate cash flow challenges than a large business because small businesses may have fewer customers, a limited number of product or service offerings, and limited cash reserves. On the other hand, large businesses often have more cash reserves and may have more diverse offerings, which can enable larger businesses to pivot their sales strategy during a recession. 

Additionally, banks, financial institutions, and investors also tend to cut back on loans during an economic downturn. Data from the Consumer Financial Protection Bureau shows that small business lending decreased by 32% during the Great Recession. This further contributes to a significant decline in cash flow during a recession. 

2. Decreased or no demand

In the event of a recession, business priorities and budgets shift significantly. While some products and services are always in demand, organizations and individuals need to make difficult decisions about which expenses to cut. Depending on your offerings, customer base, and industry, this can mean decreased or no demand for your products and services. 

As consumers cut their discretionary spending during a recession, some industries are more vulnerable to decreased demand than others. According to data from the U.S. Bureau of Labor Statistics, the industries most impacted by the Great Recession included construction, manufacturing, professional and business services, and retail trade. Additionally, data from S&P Global shows that the industries most affected by the COVID-19 pandemic were airlines; automobiles; energy equipment and services; hotels, restaurants, and leisure; and specialty retail. 

3. Hiring freezes and staffing reductions

During a recession, as demand decreases or expenses need to be cut, many organizations have to make the difficult decision to freeze hiring or reduce total worker headcount. Data from the U.S. Bureau of Labor Statistics shows that unemployment jumped from 5 to 10% and total employment dropped by 6% in the U.S. during the Great Recession. 

Given economic uncertainty and concerns related to job security and layoffs, research from Glassdoor found that employee confidence dropped to 44.4% in February 2025—the lowest level since Glassdoor began tracking this data in 2016.  

In addition to hiring freezes or layoffs, other ways a recession may impact workforce decisions include: 

• Pushing back pay raises and promotions
• Reducing wage rates
• Pausing worker perks like free lunches and team outings
• Adjusting executive compensation 
• Cutting worker hours or minimizing overtime
• Implementing furloughs
• Offering voluntary unpaid time off
• Creating voluntary exit packages such as early retirement

4. Operational changes

In addition to more effectively managing workforce costs, organizations also look to adapt their business strategy and overall operations to maintain business strength and relevance during an economic downturn.   

Consider asking the following questions when determining operational changes that will help your business weather a recession:

• How will one-, three-, and five-year revenue and growth projections change in the event of a recession? 
• How many months’ worth of savings and cash reserves does the business have?
• In which areas of the business can expenses be consolidated or streamlined?
• Can certain tasks or processes within the business be automated to reduce costs and save time? 
• How can the business embrace technology to drive efficiencies? 
• Can the business expand or pivot product offerings to adapt to shifting customer needs during a recession? 
• Which roles and skills are critical to helping the business get through a recession? 
• How can the company help workers learn new skills to meet evolving business needs?

5. Price wars

When speculation of an economic downturn hits, some companies jum- start price wars with their competitors, slashing prices to gain new business as customers tighten their budgets. However, price slashing can hurt an organization’s long-term brand and profitability much more than the near-term benefits possibly seen with increased volume of sales during a recession.

Price wars decrease overall profit margins and have the potential to turn away existing customers who might think decreased prices means your products or services won’t offer as many benefits. Engaging in a price war can also present challenges when the economy improves and it comes time to increase your prices, as customers might not be willing to return to paying higher prices. 

9 tips to prepare for a recession

Fluctuations in the economy are normal and natural, but this doesn’t make talk of a looming recession any less alarming. Having an understanding of where your company’s finances currently stand and developing a proactive plan can help ensure your business isn’t caught off guard if the economy falls into a recession.

Tips to prepare your business for a recession include:

1. Make a financial plan
2. Pay down debt
3. Reassess financial priorities 
4. Embrace artificial intelligence to automate manual tasks
5. Rethink workforce needs
6. Boost business savings and reserves
7. Identify additional income streams
8. Network and build relationships 
9. Employ market intelligence 

1. Make a financial plan

Any time a recession is looming, businesses need to rethink finances and projected revenue. When updating your financial plan for a possible recession, calculate different revenue forecasts—including one for a best-case scenario, one that is the most likely and realistic, and one representing what revenue might look like in the event of significant economic turbulence. 

As you determine how to build a financial plan to support business resilience, consider the following questions:

• What is the current monthly and annual budget for the business? 
• How many months of expenses can be covered by current savings and reserves? 
• What steps can the business take to increase savings? 
• What is the ROI of existing products and services?
• What are the revenue projections for one, three, and five years? 
• How much projected revenue might be at risk in a recession? 
• How can marketing and sales strategies adapt to drive revenue in a recessionary environment?
• Which expenses can be reduced or cut? 
• How can current product or service offerings adapt to meet changing customer needs?
• What new products or services can be developed to drive revenue during a recession? 

Rather than managing the process on your own, consider tapping into the expertise of a freelance financial professional. Finance experts are available on Upwork to assess your current business finances, provide expert recommendations based on their prior work experience, and implement a plan to help your company weather a recession.

2. Pay down debt

When a potential recession is on the horizon, paying down debt can be a balancing act, so understanding the risks and benefits is important. While having little or no debt can give your business more cash flow flexibility once a recession hits, taking steps to pay down debt sooner than expected can limit your immediate cash flow.  

Sources of debt might include, but are not limited to: 

• Lines of credit
• Capital expenses
• Business loans
• Equipment loans
• Excess inventory 
• Personal debt

When identifying a strategy to pay down debt, a key step to take is assessing the interest rates for each debt source. Prioritize paying down any debt with the highest rates or variable rates that have the potential to increase in the future. 

Additionally, if your business holds physical inventory, consider the carrying costs associated with non-moving inventory. Obsolete inventory can have a negative impact on business profitability, so identify ways to eliminate this inventory, such as selling at a discount, bundling products, or eliminating specific items (SKUs).

While paying down business debt is essential to weathering a recession, also take stock of any personal debt—such as car loans, mortgage payments, and credit card debt—and make an effort to pay down what you can.

3. Reassess financial priorities

An economic recession only makes managing costs more challenging. Before a potential recession hits, take proactive steps to paint a full picture of your financial priorities and identify ways to reduce and optimize spending.

While the following isn’t meant to be an exhaustive list, some steps your business can consider to reduce operational costs include:

• Engage freelancers to address skills gaps. During a recession, your organization may implement a hiring freeze for full-time workers. However, accessing the skills you need to achieve business goals is critical no matter the economic conditions. By engaging freelancers, you can identify individuals with specific in-demand skills, more effectively manage costs, and scale your team up and down as needed when priorities shift. 
• Review software and other subscription costs. Chances are, some of your suscriptions—such as software and app licences and paid online news sources—aren’t being utilized, while others might be duplicate, which can open the door for spending reductions. Consider consolidating and using only one app for each specific purpose across your organization. Using the same tools companywide can also improve cross-team collaboration. 
• Renegotiate contracts. All businesses face challenges with a recession, meaning the vendors your organization works with may be more willing to offer better contract terms, rather than potentially lose your business. For example, some suppliers offer early payment discounts, while other vendors might offer more flexible rates or payment terms to retain your business. 
• Rethink existing product and service offerings. If your business has products or services with lackluster sales, you can consider eliminating them to reduce marketing, production, and supply chain costs, and refocus your budget on high-performing offerings. Another option is bundling products. When potential customers see products discounted as part of a bundle, they might be more likely to buy, which can drive increased revenue. 

4. Embrace artificial intelligence to automate manual tasks

Driving efficiencies across your organization is always important. One way to do so is by automating manual tasks with artificial intelligence (AI) and other technology. When it comes to automating tasks, some may jump to the conclusion that doing so means replacing individuals’ jobs with technology. But rather than taking away jobs, embracing AI across business functions and automating tasks can help your team work more efficiently and strategically. 

For example, by automating invoicing, your finance and accounting teams can focus more on larger strategic tasks to prepare for a recession. And if initial candidate screening and other hiring steps are automated, your recruiting team can spend more time interviewing qualified candidates. When you engage freelancers on Upwork, you can make the most of automation features by using Uma™, Upwork’s Mindful AI. With Job Post Generator, you can draft job posts in a matter of seconds and through candidate evaluations, Uma automatically evaluates proposals to quickly identify top freelancers to consider for your open jobs.  

If you’re looking for additional support integrating AI into your business, AI freelancers with a range of skills are available on Upwork, including AI engineers, AI developers, and chatbot developers. 

5. Rethink workforce needs

Because some of the significant impacts of a recession are hiring freezes and staffing reductions, rethinking your workforce needs can help your organization remain resilient during a recession. You may think of ways to drive improved business outcomes among your existing team members and implement low-cost recruitment techniques that align with your limited hiring budget. 

One strategy might be to offer resources for workers to learn new skills or adapt existing skills. This can help individuals transition to projects and functions that are more in-demand at the company during a recession. As an example, if your organization is in a hiring freeze, recruiting team members can tap into transferable skills such as empathy, communication, and problem-solving to succeed in a customer service or support role. This approach is a win-win because it enables workers to stay with the company and can help support an improved customer experience and client retention. 

Another strategy is taking a skills-based approach to address critical skills gaps at your organization. Skills-based hiring, also known as skills-first hiring, is a hiring approach that emphasizes engaging workers based on their skills, knowledge, and capabilities, over educational degrees or previous employers. By hiring based on skills, you can access individuals with the competencies you need to succeed through a recession. 

As you look to identify workers with the right skills for your business needs, you can access the top 1% of freelancers on Business Plus, prevetted for technical expertise, hard skills, and soft skills, who can make an immediate positive impact at your organization as you navigate a recession. 

6. Boost business savings and reserves

Building healthy business savings and reserves is always a best practice, one that should ideally happen before a recession. On both the business and personal side, a common recommendation is to set aside at least six months of basic, recurring expenses, often referred to as an emergency fund, to tap into during challenging financial times. If you have the resources, building even more of a cushion is recommended. 

Recurring business expenses to take into consideration as you save can include, but are not limited to:

• Debt payments
• Payroll
• Lease payments
• Utility bills
• Supplies
• Insurance

When boosting your savings and reserves, calculate your total monthly expenses and make sure you have enough to cover these expenses for several months, with some wiggle room in case costs increase. Additional savings are especially important now, given high inflation rates and possible supply pricing increases due to tariffs. 

7. Identify additional income streams

Relying exclusively on revenue streams that have driven strong business outcomes in a healthy economy can be risky during a recession. If the industries you sell into contract during a recession or the products and services you offer aren’t as relevant when your target market is cutting costs, this can lead to a quick decline in revenue.

To come out ahead in a recession, consider identifying additional income streams for your business. Options may include:

• Trying freelance work. A recession can throw a wrench into personal finances in addition to presenting challenges for businesses. Between inflation and stock market uncertainty, you may find identifying additional personal income streams helpful. One option to consider is finding work as a freelancer. Take inventory of your strongest skills and consider searching for relevant projects on a work marketplace like Upwork to supplement your income.  
• Expanding your target audience. When you’re looking to bring in additional revenue during challenging economic times, expanding your target audience can be helpful—as long as you avoid casting too wide a net outside your core focus area. For example, if you currently target small business owners in a few industries, think about ways to expand your sales and marketing efforts to other similar industries or larger businesses in the industries your business currently targets. 
• Offering new, adjacent products or services. Think about ways in which your business revenue might be impacted by a recession and how you can pivot to bring in additional revenue, without straying too far from your original offerings and area of expertise. At the height of COVID-19 restrictions, many retailers and restaurants expanded online ordering options or began offering curbside pickup to make up for lost in-person revenue. Even after restrictions eased, many continue to offer these options to drive additional revenue.  

Marketing automation platform Mailchimp is one example of a business that successfully pivoted during a recession. Prior to the Great Recession, Mailchimp primarily targeted large corporations on an annual retainer basis. When many organizations decreased marketing budgets during the downturn, Mailchimp launched a “Forever Free” pricing plan, enabling customers to send up to 1,000 emails a month to a maximum of 500 subscribers. 

A goal of this approach was for more businesses to discover the benefits of Mailchimp, and ultimately transition into paying customers to access premium features and send a higher volume of emails. This shift was a success, with Mailchimp growing its user base from 85,000 in September 2009 to 450,000 in September 2010. 

8. Network and build relationships 

Forging relationships with new contacts can be tricky once a recession hits, as many organizations are hesitant to try new products or services when budgets are tight. Taking proactive steps to network ahead of a recession can help your business develop relationships that you can continue to nurture. 

Consider attending online and in-person networking events to expand your list of contacts and prospective customers. Such events can also help you learn more about the current pain points your target market faces, as well as emerging industry trends, and effectively adapt your messaging or offerings to meet evolving needs. 

Also continue to strengthen your relationships with current customers and other contacts, which can encourage customers to remain loyal to your business—even during a downturn. Another benefit of maintaining positive relationships is that your contacts may also send referrals your way, which can help your business continue to drive revenue in the event of a recession. 

9. Employ market intelligence 

While recessions are daunting, economic downturns can also present significant opportunities to innovate. In fact, several billion-dollar companies were founded during the Great Recession, including Airbnb, Slack, Uber, and WhatsApp.

Similar to attending networking events to learn about emerging trends and customer needs, tapping into market intelligence can also help identify market trends and potential business opportunities. 

Embracing marketing intelligence can help your business:

• Identify market shifts
• Understand evolving customer needs and demands
• Identify growth opportunities
• Optimize marketing spend 
• Drive operational efficiency 
• Analyze competitor strategies and gain an advantage

A wide range of platforms and tools are available to help your sales and marketing teams with market intelligence efforts. Some examples include AlphaSense, Demandbase, G2, Semrush, and ZoomInfo.

Get additional support with your market intelligence efforts by searching for and hiring a skilled data analyst on Upwork. 

Engage skilled freelancers on Upwork to help your business navigate a recession

Economic recessions are daunting for both individuals and businesses. By understanding the potential impacts a recession can have on your business and identifying ways to address key challenges, your organization can be better prepared if and when a recession strikes.

If you’re a business leader looking to optimize spending while ensuring you have team members with the skills you need on your team to weather a recession, Upwork can help. Through Talent Marketplace™, access diverse, experienced freelancers with more than 10,000 skills to fill any skill gaps while reducing operational costs.

Sign up for an Upwork Business Plus plan to engage the top 1% of freelancers on Upwork and short-list top individuals who meet your specific job requirements. Log in to your Upwork account or create an account. 

If you’re a freelancer looking for new opportunities, explore how Upwork can help you find and complete jobs that align with your skills and experience. 

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