First you need to determine the concepts: what does the term “recession” mean by itself, what does it mean? The economic dictionary decodes this concept as a decline in production due to zero or negative growth in gross domestic product.
Moreover, the decline in GDP is closely related to stagnation. According to the interpretation of the dictionary, a recession, to be called a recession, must last at least six months or more. But it is important to understand that the economy is cyclical in nature. And the recession is just one of the phases of its cycle.
That is, according to economic laws, at first there is an economic crisis, then depression, after these two phenomena a period of recession begins, but after it there is a phase of economic growth. And so on, in a circle.
In this article you will learn about types of recession and business idea during recession and way to implement.
Types of recession and its causes
There are three types of recession (depending on the reasons):
- Due to unplanned changes in market conditions. These may be reasons such as war or a sharp change in the price of resources, for example, oil. This is the most dangerous type of recession. After all, it is unpredictable, it is impossible to predict and foresee it, because it affects the economy of the state most heavily.
- The second type is characterized by political or psychological reasons. Such circumstances as a drop in consumer confidence, an increase in uncertainty in the business or investor environment. That is, due to this, in fact, anthropogenic factor, the value of demand or supply for many types of goods and services will seriously change and cause a recession. The recession, which is rather unpleasant in its consequences for the country, but nevertheless, it is quite easily neutralized. It is enough to lower interest rates or create artificial excitement.
- The third type of recession involves a loss of balance in the economy. As a result, debts are growing rapidly, and market quotes are falling rapidly.
At the moment, there is a recession throughout the world. The prerequisites were an increase in raw material prices. This active demand has caused an increase in consumption, a huge number of unreasonable risky loans, the activation of speculators.
Due to all these factors, the whole world essentially owns fictitious capital. As a result, you can easily predict further events – a crisis or a protracted phase of depression. And this process, alas, is inevitable. But how a particular state survives these unpleasant periods in the global economy depends on economic policy. If it is correct, then the negative consequences of the recession can be significantly reduced.
You May Also Like: HOW TO MAKE PHOTOGRAPHS LOOK PROFESSIONAL: 15 TIPS FOR PERFECT PHOTOS 2020
How does a recession affect a business?
Recession affects different types of business in its own way. It is important to understand exactly what the difference is. But in any case, the impact will be negative. The question is that some companies can destroy a recession, while others will only partially and insignificantly affect.
But in any case, a recession, like a trigger, will affect everyone and everything. Everything from giant companies, the foreign exchange market, resource prices to small firms and advertising agencies will suffer from this economic phase.
A large manufacturing company in the recession phase, sales will certainly fall. To return profits to the previous level, management will stop hiring new people, which will reduce the dynamics of hiring, will spend less on advertising, the research business, purchases of equipment will become less, production of new products may decrease or stop.
And then the chain reaction works. Profit will fall from advertising companies, from partner companies, from companies that manufacture equipment and so on. Roughly speaking, this is a vicious circle: a drop in profits from giant companies will invariably lead to a drop in profits from other large companies, as well as from smaller firms, and so on, in a downward direction.
In addition, if the company’s profit falls, its shares will become cheaper, but this will allow the company to pay less dividends or even stop paying them. Some investors, namely institutional ones, will begin to get rid of stocks due to a drop in their price. But since such investors usually have rather large blocks of shares, due to such sales as a “package,” shares will start to cost even less.
It is important to understand that during the recession the number of unpaid bills will increase, that is, debtors will pay them with delays or will not pay them at all. In turn, the company has limited ability to pay off its debts and its bonds will become unattractive, risky. As a result, it will become much more difficult for companies to get loans. Further, due to the depreciation of bonds, funding will decline even further. What follows is two options for decoupling this chain – a major reorganisation or “death” of the company.
What are Business idea during Recession?
Here we will discuss our business idea during recession for business and how to get out of recession.
How to keep a business?
There are many measures to combat recession. They will delay the inevitable for a certain period and give the company time for which the company can get out and survive the recession without declaring bankruptcy. One measure is layoffs. This is a fairly effective method of struggle, because the company’s costs will significantly decrease due to salaries to staff.
As a result, the few employees remaining in the company will be forced to work for several people, more and more diligently. This method involves “squeezing” the maximum result out of employees. But there are disadvantages to this method. The accumulation of fatigue, a decrease in staff motivation, fear of dismissal – all in total will negatively affect the productivity of employees in a relatively short period of time. Therefore, the method of Henry Ford was more optimal when he agreed with the employees of his plant on a number of measures for the survival of the company and the preservation of jobs.
Recommended for You: 3d printing business ideas: 6 profitable ideas 2020
These may be measures such as:
- salary reduction;
- the elimination of social benefits, such as meals or insurance at the expense of the company;
- the elimination of unprofitable areas, departments with reductions.
Mass layoffs – one of the measures to preserve the business during the recession. Another method of the company’s struggle for survival during the recession is to reduce production costs. But as a result, product quality will become lower. And this means that demand for it will fall. This is a controversial option, because on the one hand, company sales will decline. And on the other hand, this method can help buy time before the crash.
There are many options for saving on production – reducing the net in the previous packaging and at the same price, purchasing lower-cost ingredients, saving on the safety of deliveries and transportation.
Such methods will certainly reduce demand and may even slightly worsen the opinion of consumers about the product, but the task is to survive on the market in the most difficult recession conditions. In such circumstances, customer satisfaction is a secondary concern.
In addition, it is worth substantially reviewing all costs in general. For example, ordering several services at the same time (analogy – bulk purchases) will cost you less than individually. Also, it is worth reconsidering your decision to use the equipment. To consider what is more profitable for you – purchase or leasing. Which decision will be correct depends solely on the period for which you need this equipment.
Also, without fail you need to assess the value of your stocks. Manipulating such methods of assessing this value as a simple or reverse order will save significantly on taxes. It’s important to understand that the smaller the company, the less likely it is to survive the recession. If a small company has neither cash reserves nor liquid capital, then this company will leave the race very, very quickly.
How to get out of recession?
The recession is a temporary phenomenon, but rather a long one, because this phenomenon is preceded by a number of economic and geopolitical factors. But to avoid this phase in the economy will not succeed. After all, the economy is cyclical and recession is one of its phases. But it is important to understand that after the recession there is a period of recovery, the development of the economy. Therefore, if the company succeeds with the help of the radical measures taken to save it, they will stay afloat until its end, and the beginning of the next period, then the exit process will be quite simple.
After a deep crisis, one can finally breathe in calmly and actively develop the business, expand it, and increase the staff of employees.
The main thing is to make sure that the recession is really over and when the company’s profit starts growing again without taking rash steps. To develop a company in the period after the end of the recession should be calm and confident, counting every step and understanding that sooner or later bad times can come again and you need to be prepared for them.
In economics, the whole process is cyclical, and moving in a circle. The recession is one of the stages of the economic cycle, followed by the stage of economic growth. The larger and more liquid the company, the more likely it is to survive the recession. Small illiquid companies are unlikely to survive the recession.
There are a number of measures in order to survive the recession and implement these Business idea during recession i.e these are staff cuts, lower production costs, lower wages and others. All these measures are unpleasant, but they cannot be avoided. The recession will affect all economic entities in the country. After all, large companies are closely connected with partner companies, smaller intermediary companies, advertising agencies, the foreign exchange market and the stock market, and so on.