An economic recession can have a devastating effect on small businesses. Is there a recession definition that fits today's business climate? Are there any recession proof businesses? What strategic actions can you take to minimize the impact of this recession cycle? These are questions that most business owners want, and need, answered.
There are some recession proof businesses (well, maybe some almost-recession proof businesses).
For example, health care related businesses (people still need to take care of their health) are usually not as severely affected; and fast food businesses seem to do well in a recession because people are not going out as much to expensive restaurants but they still want to go out; grocery stores (people still shop for the basics) seem to maintain sales; alcohol and cigarettes are usually not affected by recessionary trends; often post-secondary school institutions do all right during a recession - particularly those programs that are focused on employable skills; and so on.
There are a number of definitions. In short, the economy declines or contracts (negative Gross Domestic Product (GDP) is the usual descriptor) - usually for a minimum of two consecutive quarters.
In many of today's markets, there is more supply than demand. And there is more capacity, because there is reduced demand. Additionally, unemployment rises during an economic recession.
New market trends have shown up during this last economic recession; for example, there have been shifts in demand from newspaper advertising to online advertising (to the detriment of newspapers, and to the growth of organizations like Craigslist).
As a business owner or manager, you need to understand and capitalize on the trends that were established during the recession cycle.
Businesses are facing growing pressures and challenges from the marketplace in today's economic climate. Pressures (such as the need to make fast decisions, react to changing markets and environment, handle new and different opportunities, aggressive competition) need to be quickly identified and acted upon.
(also known as the 'Great Recession')
The recession hit most North American countries in 2008; and a number of countries around the world have been in and out of recession (or hovering close to it) since. The recovery has been weak and long.
Recent media reports indicate that, while we hit the bottom of the recession cycle and flattened, improvement is slow and demand is expect to be weak for at least another year. In our global economy, weak economic performance in one country can effect other countries. The European Union is struggling with high debt and therefore high interest rates for some of the weakened countries and that has impacted the economic health of the other, stronger countries. Media and financial analysts are talking about looking toward 2013 and 2014 for better results
Many small business owners have seen demand for their products and services drop significantly, and watched their financial statements and financial ratios (measures of business health) worsen; growth strategies now are really just focused on 'stepping' up to where we were in previous, 'better' years. Real growth will be planned and managed, once businesses feel they can survive the current economic recession.
In today's market, you need your price program to be more agile than ever before. You need to be able to respond when it's necessary (under threat of losing business, or threat of increased competition, or more).
Change the price offer. Can you offer more, for less? Can you offer less, at somewhat of a lesser price? Can you offer more (much more), at a somewhat higher price?
Develop your survival strategy for this economic downturn; change your management focus and change your management actions. Your pricing adjustments or discounts need to focus on retaining profitable customers who are easy to work with and who pay on time.
Don't discount your price to non-profitable or difficult-to-work-with customers! And don't discount your price to customers you have to chase (for days, or weeks, or months) for invoice payment.
Companies I work with that normally expect 15 to 18% profit, are happy to receive 5% profit on their work during this recession; however low profits cannot sustain a business long-term.
Look at your longer term capital expenditure needs. Can you get a great deal on a new (or gently used) forklift truck? Can you get a 'smoking' deal on new computers for the office? This is a great time to buy equipment; if you have cash AND if you needed to buy that equipment anyway.
Does the opportunity to invest in a business (or a product or service) provide you with good/great leverage in the marketplace? Does it provide you with some cost savings opportunities? Does it provide you with opportunities for increasing gross margin and/or accounting profit? Does it fit your overall mission and vision statements? Does it fit your strategic plan? Also, does the merger or acquisition give you an advantage against your competition that they will find hard to match or imitate?
Having, accessing and using powerful business metrics will give your business a unique competitive advantage.
They also measure dollars, not cost or revenue drivers. And they are primarily prepared for, and focused on, delivering messages to those outside the company (i.e. bankers, other lenders and shareholders).
If using financial ratios for trend analysis, make sure that you use good data: what is the range of the population; the size; what is the population skew; what is the standard deviation; what is the coefficient variation; etc. These are normal statistical data criteria.
Some businesses will not survive this economic market 'shrinkage'. Don't be one of those businesses. Think specialty. Think niche products or services. Even if your business is diversified, and you're offering a wide range or variety of different product or services, find a way to focus on those products or services that make you different, and special, and that others would find hard to replicate.
Recessions are cyclical; we've experienced numerous recessions over the past 100 years - it's the depth, the breadth and the length of the recession cycle that is hard to predict and impossible to manage.
The marketplace always looks somewhat different at the end of an economic recession than it did at the beginning of the recession cycle; be proactive and change and adapt to the market under your own terms upfront, don't let the market force change on you.
Part 1 of 2 ... continued in Part 2 How To Survive A Recession?
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Hello. I am a professor teaching Human Resources Management. You have an excellent page on writing business value statements entitled your "Value Statement: Develop a Definition of Values in Your Business". I would like to use this page (giving full credit) to teach my students how to write good business value statements for the HR Strategic Plan they are required to prepare. Thank you. Richard C. Brocato, Ph.D. Professor of Management, Maryland, USA
(Note from Kris: I was happy to give permission to use as the source was fully credited.)
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