How to Lead During Difficult Economic Times

Quick Answer: how to lead during difficult economic times: Leading through a downturn is a communication and prioritisation problem before it is a cost-cutting problem. The sequence that works: stabilise cash first, then be honest with the team about what is happening and what you are doing, then protect the specific people and capabilities that will matter when conditions improve, then renegotiate costs rather than slashing them, and then look for the counter-cyclical opportunity — because every downturn creates one, and it is usually visible only to businesses that kept their key people.

What this guide covers

• The order of moves in a downturn, and why the order matters
• Cash stabilisation in the first two weeks
• What to say to the team, and what not to say
• Choosing what to protect and what to pause
• Renegotiating costs without damaging relationships
• Finding and exploiting the counter-cyclical opportunity

The order matters more than the content

Most leaders respond to a downturn by cutting costs immediately, because it feels decisive and it produces a number this month. It is usually the third or fourth move, and doing it first creates two serious problems: you cut the capabilities you need later, and you do it without having stabilised cash, so you may cut too much or too little.

The sequence that works:

Weeks 1–2: Stabilise cash. A thirteen-week rolling forecast on collected cash, not invoiced. Identify every payment that can be moved without breaking a relationship, and every payment that cannot. Get to a position where you know exactly how long the runway is under a pessimistic case.

Weeks 2–3: Tell the team honestly. What is happening, what you know, what you do not know, what you are doing, and by when you will know more. Specific and dated beats reassuring and vague.

Weeks 3–6: Decide what to protect. Name the capabilities that will matter in eighteen months and the roles that can be paused without losing them.

Weeks 4–8: Renegotiate costs. Every supplier, landlord and service provider, with an honest explanation and a specific proposal.

Months 2–6: Find the counter-cyclical opportunity. Competitors will be withdrawing from something. Your job is to notice which something.

Doing the cuts first means cutting blind, and it damages the trust you need for the honest conversation in week two.

Weeks 1 and 2: cash

The first question is not “how do we cut costs” but “how much cash do we need, and how long do we have”.

The mechanics that matter:

Forecast on collected cash, not invoiced revenue. A business can be profitable on paper and insolvent, because growth consumes cash before it produces it and payment terms stretch exactly when buyers get cautious.

Run a thirteen-week rolling forecast, weekly. It is usually pessimistic in the useful way, and it turns “how did we get here” into “we saw it in week nine”.

List every cash commitment by date and by whether it is negotiable. Payments to suppliers, rent, payroll, taxes, loan repayments, marketing commitments. The list itself creates the options.

Ask for terms before asking for forgiveness. Payment terms, staged invoices, a deposit restructure. Many suppliers can accommodate a customer who asks clearly and early; very few accommodate one who simply stops paying.

Stop spending that has no near-term return. Marketing and software are the usual categories, and the test is whether it produces conversations this quarter. Do not cut the things that produce revenue next quarter — this is where panicked cuts do the most damage.

Weeks 2 and 3: what to tell the team

Silence is the expensive option. A team that is not told what is happening fills the gap with the worst available assumption, and the assumptions people invent are reliably worse than the reality. People do not lose morale because a business is struggling; they lose morale because they were surprised.

What the honest conversation contains:

What is happening, in facts. Revenue is down 20 percent against plan; two large customers have delayed; collections have slowed. No interpretation, no reassurance.

What you know and what you do not. “I do not know whether this will get worse. What I do know is our runway under the pessimistic case is nine months.”

What you are doing. The actions, with owners and dates. “I am cutting campaign X, renegotiating the lease, and moving two roles to part-time until March.”

What you are not doing. This is the one people forget, and it is often the most reassuring thing you can say: “I am not cutting pay, and I am not making redundancies in this quarter.” Stating what will not happen ends the speculation that usually dominates a team’s private conversations.

When you will know more. A date. “I will have a clearer picture by the 20th, and I will tell you what I know then, even if it is not good news.”

Two things to avoid. Do not promise it will be fine — if it is not, you will have spent the credibility you need later. And do not deliver this only in a written message; say it in person, to the team, and make sure the people who will hear it second-hand hear it accurately first.

Weeks 3 to 6: what to protect, what to pause

The instinct to protect every job is understandable and usually wrong for the business. The instinct to cut the most visible or most expensive roles first is also wrong. The right frame is to protect capabilities rather than headcount.

Some capabilities are the business: whoever holds the customer relationships, whoever carries the technical knowledge, whoever keeps the operation running. Losing those in a downturn means rebuilding them later at a higher cost and a slower pace, and the business will not be the same when they return.

Some roles can genuinely pause. Contract work, a second marketing hire, a project that is valuable but not urgent, an office that could be smaller. Pausing is reversible in a way that firing is not — which is the argument for making the reversible move first.

Three questions for each role: can this wait six months? What happens to the business if this stops entirely? Can we do it smaller rather than not at all? A role that can be reduced by half for a quarter is a far better option than one that can only be kept whole or removed.

If reductions are genuinely necessary, the fairness of the process matters more than who is chosen. Apply a published criterion, communicate it directly, and offer what you can. A team that watches an unfair process concludes the organisation does not deserve loyalty.

Weeks 4 to 8: renegotiate rather than cut

The instinct in a downturn is to cut a supplier off and find a new one later. It is usually the wrong move: it costs money, it takes time you do not have, and it burns a relationship you may need.

The alternative is a conversation, and it works more often than leaders expect. The elements that make it work:

Be specific about the situation and the ask. “Revenue is down 25 percent this half and I need to move the monthly invoice to the following month for the next four months.” A specific, bounded request is answerable.

Be honest about the risk without exaggerating it. The supplier can often tell the difference, and exaggerating damages the relationship more than the original problem did.

Offer something. A longer commitment in exchange for a lower monthly figure; payment on delivery rather than in advance; a reduced scope at a reduced price. Suppliers prefer to keep a good customer at a lower margin to win them back at a higher one.

Give notice early. The worst outcome for a supplier is discovering a problem late, because their own planning has already committed them.

And apply the same discipline to your own costs in reverse — renegotiate your customers’ terms too, by offering value rather than asking for a discount on the same thing.

Months 2 to 6: the counter-cyclical opportunity

Every downturn creates an opportunity, because competitors react in the same way: they withdraw, cut prices, and stop investing. The opportunity is usually the thing they have stopped doing.

The most common patterns: a competitor has withdrawn from a segment or a geography, and the demand there still exists; a competitor has cut service, and customers who have been tolerating bad service are now looking; a competitor has stopped investing in a product line that customers still want; and the general freeze on spending has pushed buyers toward cheaper suppliers who can deliver reliably rather than premium ones who cannot.

The conditions that let you see it: spare capacity, an intact team, and cash. This is why the earlier decisions matter — a business that has cut its key people and spent its buffer in the first two months will not be in a position to act when the opening appears, even though it saw it first.

The practical habit: during the downturn, list what your competitors have stopped doing and what you have capacity to do. Then pick one and prepare, rather than waiting for a sign. The constraint framework in a simple framework for growing any business applies here — the binding constraint during a downturn is usually cash or demand, and the opportunity sits on the other side of one of them.

Related reading

• What Great Managers Do Differently
• The Hard Truth About Starting a Business
• How to Stay Motivated When Results Are Slow

Frequently asked questions

What should a business cut first in a downturn?

Not the jobs, and not immediately. Stabilise cash first with a thirteen-week forecast on collected cash, communicate honestly with the team, then decide what to protect and what to pause. Protect capabilities rather than headcount — the customer relationships, the technical knowledge and the operational capability that will matter in eighteen months — and pause what can genuinely wait, possibly at reduced hours rather than not at all. Cutting first and cutting blind destroys the capacity you will need when conditions improve.

How do we communicate a downturn to employees without causing panic?

With facts, limits and a date. Say what is happening in numbers, what you know and what you do not, what you are doing with owners and dates, and explicitly what you are not doing — for instance, that pay is not being cut. End with when you will know more, and honour that date even if the news is not good. Panic comes from uncertainty and from the sense that management knows more than it is saying; both are removed by specificity, not by reassurance.

Should we reduce salaries or hours instead of making redundancies?

Where it is possible, yes — it preserves capability and relationships and keeps the option of returning to full capacity quickly. Reducing hours is reversible; a redundancy is not, because rehiring the same person later costs considerably more and takes months. This is true for suppliers and landlords too, which is why renegotiating terms is the first move rather than ending the relationship and replacing it later.

How do we negotiate with suppliers during a downturn?

Honestly and specifically, with a bounded request and something in return. State the situation plainly, make the ask concrete — move invoices by thirty days for four months, reduce scope by a third for two quarters — and offer a concession such as a longer commitment or prompt payment. Suppliers can often accommodate a customer who explains the situation early; very few accommodate one who simply stops paying or disappears. Give notice early, because their own planning has already committed them by the time a problem is discovered late.

What opportunities exist during a downturn?

Most commonly, the things competitors have stopped doing: serving a segment or geography they have withdrawn from, providing service levels they have cut, or supplying a product line they no longer invest in. Demand does not disappear with their supply, which is exactly what creates the gap. Seeing it requires spare capacity, an intact team and cash — so the decisions made in the first two months determine whether you can act on it when the opening appears. A useful weekly habit is to list what competitors have stopped doing and what you could absorb.

How do leaders keep their own morale during difficult times?

By keeping the routine and reducing the noise. A downturn raises the emotional cost of every decision because everything feels consequential, and the way through is procedural: the weekly numbers review regardless of what they show, the regular conversations with the team, and a written distinction between what you can control this month and what you cannot. Also watch for the slow erosion of thinking time — the leader who is in the business all day cannot see the business. A deliberate protected block for thinking and for one strategic conversation is often the highest-return hour in the week.

Written by SkilBrill Training Institute

November 5, 2026 · 12 min read