Cash is essential for surviving a recession. When sales are down, operating expenses must usually be cut, which often means layoffs or furloughs. Who’s unpleasant, but the companies that act swiftly have the best chance of surviving.
Collections must be a top priority for businesses that offer trade credit. Salespeople will be clamoring to match competitors’ no-credit-check deals. In a recession, however, transporting product over the shipping dock without receiving payment is exceedingly risky. Providing services almost always necessitates paying the service company’s employees before receiving paymentand payment does not always arrive.
Inventory levels must be closely managed. In a recession, a company’s need for product is significantly lower than in a boom, and the money stashed in inventory could be put to greater use. Inventory may be liquidated for pennies on the dollar in emergency situations, therefore it’s best to keep those dollars in the first place.
What do companies do during a downturn?
Because no two downturns are the same, marketers find themselves in uncharted territory throughout each one. However, we’ve uncovered patterns in consumer behavior and corporate strategy that either propel or hinder performance after monitoring the marketing successes and failures of hundreds of companies as they negotiated recessions from the 1970s onward. Companies must be aware of changing consumption habits in order to fine-tune their plans.
During recessions, consumers, understandably, set stricter priorities and cut back on their spending. Businesses often cut expenses, lower prices, and postpone new expenditures as sales begin to decline. Marketing budgets are frequently trimmed across the board, from communications to researchbut this is a mistake.
While cutting expenses is prudent, failing to sustain brands or assess core customers’ shifting needs might compromise long-term performance. Companies that scrutinize client needs, cut the marketing budget with a scalpel rather than a cleaver, and nimbly adapt strategies, methods, and product offers in response to shifting demand are more likely to thrive during and after a recession than others.
Increase Marketing and Advertising spend
When done correctly, business executives understand that marketing and advertising bring in more customers. They also realize that during a recession, the majority of other firms, including many of their competitors, will cut marketing and advertising budgets.
As a result, astute, proactive business owners and/or management teams ramp up their marketing and advertising campaigns. That’s correct. Rather than contracting, marketing should be enhanced during a recession. Implementing a marketing plan that is more aggressive than competitors’ provides a compound positive effect and concrete outcomes. During a recession, companies that slash their marketing and advertising spending would lose even more revenue, producing a self-fulfilling prophecy of failure.
When it comes to which businesses do well during a recession, it’s those that promote themselves aggressively and engage in advertising and other forms of digital marketing.
Cut the Bottom 20% of their Worst-Performing Customer Base
While it may appear paradoxical, significant organizations use this strategy to prosper. We’ve all had clients or customers who are late to pay, difficult to deal with, or take a disproportionate amount of your staff’s time in relation to the revenue they bring in. Now is the time to eliminate these customers.
Increased marketing efforts will attract new business, which will necessitate increased internal personnel. Cutting the bottom 20% of your client base frees up resources and capabilities of your existing labor force, allowing you to avoid adding new staff to your payroll.
Improve Operating Processes and Deliver Better Services and Customer Experience
This is the ideal moment to examine your processes from a quality control perspective, brainstorm with your employees, and figure out how you can better serve your clients. You must stand out from the crowd, and if you provide subpar service, potential clients will look elsewhere. At this vital juncture, this should not even be a possibility. You’ll get even more consumer loyalty if you provide better customer service.
Look for ways to optimize and streamline your business operations so that your staff can work more efficiently. This will assure your success in the following crucial step:
Service More Customers with the Same or Even Fewer Resources than You Are Allocating Now
You will now have the resources needed to support the increased number of consumers achieved by following the preceding steps, thanks to the enhancement and improvement of your operating procedures.
Fire Your Worst Employees, while Assuring the Rest of Your Staff that You Are Committed to them and their Well-Being.
We’ve all had employees that didn’t deliver what was expected of them. Perhaps they only put in 50% of their effort, or they are a toxic person that destroys your team’s unity. We do not always fire these employees because they perform a critical service for the organization, and we believe that keeping them on staff, even at a cost, is easier than training a new employee or eliminating the position entirely.
Whatever the situation may be, now is the moment to act. It’s essential for your company’s success. It’s crucial for your team. It is required by your customers and clients. During a recession, there is no tolerance for self-defeating behavior. Consider the larger talent pool that a recession affords if you are able to fill the position with someone new. You don’t have to be stuck.
Good employees, on the other hand, are priceless, which is why you should reassure your core team that you will support them during the crisis. That the company can go into the red this year if necessary to keep the team together (and preferably every corporation has reserves or a line of credit to do so).
If you fire a good employee, your entire team’s morale will suffer because each employee would wonder, “Am I next?” Fear, understandably, lowers productivity. Assure your team’s good people that you’ve got their backs. They will have yours if you do so.
- To strengthen brand loyalty and expand the client base, improve the customer experience.
- Improve your operations processes to increase efficiency, which will allow your staff to better serve the needs of your growing customer base.
- Remove underperforming employees to free up cash for high-performing staff and the resources needed to meet rising demand. Also, reassure your core team that you’ve got their backs. This assures that they will put in the same amount of effort for you and the company.
Did we ever imagine that the globe would be hit by a global epidemic like the one we’re seeing today at the start of 2020? No. However, recessions and severe economic downturns have occurred in the past, and some enterprises have thrived in the face of adversity.
It does not require inexhaustible financial resources. All it takes is the right plan, an offensive posture, and a growth attitude.
Remember that throughout this recession, people all over the world, including your consumer or client base, rely on you to provide them with the goods and services they require. Make yourself available to them. Let them know you’re still around, and that you’ve improved your products, services, and customer service. In the same way, we are here for our clients and team members.
Which industry is immune to the downturn?
A recession-proof business can be extremely profitable for people in both good and bad times. Whatever the state of the economy or the stock market, certain company concepts, such as those listed below, have a good possibility of succeeding despite the rest of the financial doom and gloom.
Many well-known or historically successful enterprises were founded during economic downturns. The Walt Disney Company was created in the late 1920s, at the commencement of the Great Depression, and the Hewlett and Packard electronics company was founded in the late 1930s, during the second recession.
Rising interest rates and shifting GDP pose far less of a threat to the finest recession-proof enterprises mentioned below than they do to most other businesses, with many of them having the ability to do even more business than usual.
Food and Beverage Business
Because everyone still needs food and drinks to live, the food and beverage business is one of the most recession-proof industries. Because it is not a luxury that can be put aside in difficult times, enterprises in this area can thrive even in a downturn.
A recession favours whom?
Question from the audience: Identify and explain economic variables that may be positively affected by the economic slowdown.
A recession is a time in which the economy grows at a negative rate. It’s a time of rising unemployment, lower salaries, and increased government debt. It usually results in financial costs.
- Companies that provide low-cost entertainment. Bookmakers and publicans are thought to do well during a recession because individuals want to ‘drink their sorrows away’ with little bets and becoming intoxicated. (However, research suggest that life expectancy increases during recessions, contradicting this old wives tale.) Demand for online-streaming and online entertainment is projected to increase during the 2020 Coronavirus recession.
- Companies that are suffering with bankruptcies and income loss. Pawnbrokers and companies that sell pay day loans, for example people in need of money turn to loan sharks.
- Companies that sell substandard goods. (items whose demand increases as income decreases) e.g. value goods, second-hand retailers, etc. Some businesses, such as supermarkets, will be unaffected by the recession. People will reduce their spending on luxuries, but not on food.
- Longer-term efficiency gains Some economists suggest that a recession can help the economy become more productive in the long run. A recession is a shock, and inefficient businesses may go out of business, but it also allows for the emergence of new businesses. It’s what Joseph Schumpeter dubbed “creative destruction” the idea that when some enterprises fail, new inventive businesses can emerge and develop.
- It’s worth noting that in a downturn, solid, efficient businesses can be put out of business due to cash difficulties and a temporary decline in revenue. It is not true that all businesses that close down are inefficient. Furthermore, the loss of enterprises entails the loss of experience and knowledge.
- Falling asset values can make purchasing a home more affordable. For first-time purchasers, this is a good option. It has the potential to aid in the reduction of wealth disparities.
- It is possible that one’s life expectancy will increase. According to studies from the Great Depression, life expectancy increased in areas where unemployment increased. This may seem counterintuitive, but the idea is that unemployed people will spend less money on alcohol and drugs, resulting in improved health. They may do fewer car trips and hence have a lower risk of being involved in fatal car accidents. NPR
The rate of inflation tends to reduce during a recession. Because unemployment rises, wage inflation is moderated. Firms also respond to decreased demand by lowering prices.
Those on fixed incomes or who have cash savings may profit from the decrease in inflation. It may also aid in the reduction of long-term inflationary pressures. For example, the 1980/81 recession helped to bring inflation down from 1970s highs.
After the Lawson boom and double-digit inflation, the 1991 Recession struck.
Efficiency increase?
It has been suggested that a recession encourages businesses to become more efficient or go out of business. A recession might hasten the ‘creative destruction’ process. Where inefficient businesses fail, efficient businesses thrive.
Covid Recession 2020
The Covid-19 epidemic was to blame for the terrible recession of 2020. Some industries were particularly heavily damaged by the recession (leisure, travel, tourism, bingo halls). However, several businesses benefited greatly from the Covid-recession. We shifted to online delivery when consumers stopped going to the high street and shopping malls. Online behemoths like Amazon saw a big boost in sales. For example, Amazon’s market capitalisation increased by $570 billion in the first seven months of 2020, owing to strong sales growth (Forbes).
Profitability hasn’t kept pace with Amazon’s surge in sales. Because necessities like toilet paper have a low profit margin, profit growth has been restrained. Amazon has taken the uncommon step of reducing demand at times. They also experienced additional costs as a result of Covid, such as paying for overtime and dealing with Covid outbreaks in their warehouses. However, due to increased demand for online streaming, Amazon saw fast development in its cloud computing networks. These are the more profitable areas of the business.
Apple, Google, and Facebook all had significant revenue and profit growth during an era when companies with a strong online presence benefited.
The current recession is unique in that there are more huge winners and losers than ever before. It all depends on how the virus’s dynamics effect the firm as well as aggregate demand.
How can a small business endure a downturn in the economy?
Customers want what they want when they want it, and customer service is all about giving them what they want when they want it. Customers are more inclined to stay with a company that provides excellent customer service. This implies you’ll have a better chance of keeping and growing your clientele. This could imply shifting your company’s focus to new markets, goods, or services.
- adjusting your products and services to meet the current wants of your customers
- diversifying your business to mitigate the impact of a major customer loss.
It’s also vital to identify strategies to keep your existing customers by offering excellent after-sales support during a financial slump.
During a recession, which industries suffer the most?
The retail, restaurant, and hotel industries aren’t the only ones that suffer during a recession. During periods like these, industries like automotive, oil and gas, sports, real estate, and many more face significant decreases. Although the recession brought on by the coronavirus epidemic is unusual, many of these businesses have had difficulties in the past.
However, as we already stated, not all is doom and gloom. Certain industries have done a good job of riding the wave and adapting.
What kind of occupations withstand a downturn?
8 industries with the best job security during a downturn
- Health-care services. People get sick and require medical care regardless of the state of the economy, thus the demand for health-care occupations is fairly stable, even during a downturn.
How do you get through a downturn?
But, according to Tara Sinclair, an economics professor at George Washington University and a senior fellow at Indeed’s Hiring Lab, one of the finest investments you can make to recession-proof your life is obtaining an education. Those with a bachelor’s degree or higher have a substantially lower unemployment rate than those with a high school diploma or less during recessions.
“Education is always being emphasized by economists,” Sinclair argues. “Even if you can’t build up a financial cushion, focusing on ensuring that you have some training and abilities that are broadly applicable is quite important.”