Introduction
Every day, the world changes rapidly, and we experience times when the economy is good and times when it is bad. Economic fluctuations affect our lives in a variety of ways, and we react to these changes on a regular basis. A recession is difficult to end, but there are numerous ways to combat it and improve.
What causes the recession?
According to Anderson (2022), a recession is a prolonged period of negative economic activity that includes both business and consumer activity.
Economic stability is determined by the ability to produce goods and services, as well as by disputes, health conditions, market trends, and consumer trust.
Main causes of recession
According to Santander (2022), recession is caused by the following:
Excess supply
When the economy is booming, companies increase production to meet consumer demand. However, when demand peaks, there is a surplus of goods and services. As a result, companies will reduce their production volume, and their consumption volume will also decrease at the same time, and they will fall into a recession.
Uncertainty
You cannot make sound business decisions if you are unaware of economic changes. Warfare and pandemics, in particular, make consumption trends unpredictable, making it difficult for businesses to make spending and investment decisions, and economic activity declines.
Speculation
An economic bubble occurs when prices rise unexpectedly due to speculation, market trends, or consumer confidence. Because of the price increase, investors begin purchasing it in order to profit. When they are sold, however, the supply exceeds the demand, causing the price to fall and the bubble to burst.
Which companies are most vulnerable to economic downturns?
Many jobs, according to Smith (2022), are vulnerable to a recession. Real estate, construction, manufacturing, retail, and leisure are some examples. Consumer spending and other income-dependent industries will be the first to be hit by a recession. Retail, restaurants, hotels, and real estate are all particularly vulnerable to the recession. Furthermore, industries that require a large amount of capital, such as manufacturing and real estate, are vulnerable to economic fluctuations.
How will businesses be affected by the recession?
Here is how a recession can affected businesses, according to GoCardless (2021).
Less profit
A recession makes it harder for businesses to make a profit because consumers spend less money.
Credit contraction
Business and consumer spending as well as access to lenders will be difficult. As a result, interest rates rise and lending conditions tighten.
Decrease in cash flow
When the economy slows down, the flow of money slows down, making it difficult to make quick payments. Companies spend a lot of time chasing invoices, which can delay payments to suppliers.
Product quality declines
When the recession slows down production and causes unpaid bills, companies try to cut costs and find solutions. This may result in services and products that fall short of normal standards.
How can a company survive in a recession?
Per GoCardless (2021), a company can overcome a recession by:
Grasping the financial situation
It is important to have a regular understanding of finances in order to check the health of employees and avoid quality deterioration. Cash flow forecasts, in particular, are also linked to future funding forecasts.
Evaluating talents
Due to the economic recession, we may have to cut back on staff or limit the number of people we hire. In order to reduce these effects, we need to make an effort to make the most of the talents we have.
Building a recession-proof business
Business recessions cannot be completely avoided, but it is possible to implement crisis management and implement various plans. Also, by building strong relationships with customers, it is possible to create a business that is resistant to economic downturns.
Conclusion
Because businesses fluctuate on a daily basis, we cannot avoid recessions. As a result, we must comprehend the recession and devise strategies to combat and overcome it. Businesses will be less affected by the recession if we can achieve this. Companies must develop even better ideas in order to build businesses that are resilient to economic fluctuations.
References
Anderson, S. (2022). What Causes a Recession? [online] Investopedia. Available at: <https://www.investopedia.com/ask/answers/08/cause-of-recession.asp> [Accessed 14 February 2023].
Santander (2022). The causes of economic recession. [online] www.santander.com. Available at: <https://www.santander.com/en/stories/economic-recession#:~:text=When%20the%20economy%20goes%20up> [Accessed 15 February 2023].
Smith, M. (2022). 5 of the riskiest industries to work in during a recession, according to economists. [online] CNBC. Available at: <https://www.cnbc.com/amp/2022/10/28/economists-riskiest-industries-to-work-in-during-a-recession.html> [Accessed 15 February 2023].
GoCardless (2021). How Does Recession Impact Businesses? [online] gocardless.com. Available at: <https://gocardless.com/guides/posts/how-does-recession-impact-business/> [Accessed 15 February 2023].
