Covid has wreaked havoc on the economy as a whole. Economists have predicted a probable recession in 2021 before this outbreak. Despite this, many company owners were caught off guard and are worried about keeping their doors open.
Unfortunately, it appears that we will be dealing with these economic issues for the foreseeable future. According to an IMF statement, global growth in 2020 is expected to be negative, and it will take at least another year before we see signs of recovery.
Here, we’ll look at some suggestions for making your firm recession-proof so you can weather the storm.
What should businesses do in a downturn?
Make arrangements for financial help. Examine the possibility of obtaining a small company line of credit. To keep your firm afloat, apply for small business grants and small business loans. Small business loans like Kabbage might make the difference between survival and bankruptcy.
How do firms make it through a downturn?
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.
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.
What industries are always in demand?
Tax preparation and bookkeeping services have cheap overhead because they don’t require a fancy location or expensive equipment. In addition, the normal rate for good tax preparers and bookkeepers is a respectable living wage.
However, if you don’t like numbers, preparing people’s taxes and keeping track of their accounts isn’t the business for you.
Catering Business
To manage a catering business, you don’t need pricey, fancy kitchens or skilled chefs. You could also run your business from your house, lowering your overhead. People and businesses are prepared to pay a premium for professional caterers, making this a lucrative business for those who work hard and have a strong desire to succeed.
Website Design
Websites have evolved into the “windows of all successful businesses.” As a result, website designers who are both talented and imaginative are in high demand. Again, cheap costs and high rates make web design one of the most successful enterprises to operate, assuming you have the necessary creative and technical skills.