Economic Recession Sales Graph

Business Management in an Economic Recession

The Danger Signs in an Economic Recession are there to see. You need good basic Business Management Skills if you’re going to avoid business failure.

All major economies suffer the danger of economic recession, and if not already in recession what danger signs do you, the small business owner, need to watch out for?

A Business that is over-borrowed and living on credit is always the first to fail.

A business whose sales depend on too few customers or on a tight niche market is next.

And finally, a business that fails to maintain an adequate cashflow will almost certainly fold.
Economic recession and the signs of business failure

The Danger Signs in Your Business

The above situations are some of the more common reasons for business failure in an economic recession, but not the only ones by any means.

Economic Recession is probably the major cause of generalized business failure.

Particularly if you have been reliant on credit to run your business.

There are however, many other signs that your business might be in trouble, so watch out and act quickly if you begin to experience any of the following …

Business Advise in an economic recession

1. Are Your Sales Slowing. Is Your Income Declining …

If you try to borrow your way out of it, you are heading for a quick exit. Growth only comes from trading on profits, never from debt. So what do you do? I would suggest …

  • You cut your overheads wherever possible. Look for wasteful practices and eliminate them.
  • You spend extra time on your customers. Lose a large customer account and your cashflow will be hit hard. Pay attention to their problems and ensure that they are satisfied with your service if you want to avoid business failure.
  • Even in an economic recession there are new customers available. Never neglect finding new customers.
  • Review your credit terms and quickly react to late payments by visiting your customer to discuss the problem and find a solution. Managing your money correctly is vital.
  • Have you unused assets on your balance sheet? Sell what you are not using. Not the best time to sell but beggars can’t be choosers. Avoiding business failure is your primary focus.

2. Are Stock Levels Increasing …

In any economic recession demand for goods and services are reduced. So watch your stock levels closely in an economic recession. Stock costs money, especially if you have used borrowed money to produce or buy the stock. If your stock levels are growing, this should be a major worry. If you aren’t selling, how long will you remain in business?

  • Cut your stock levels to what you can sell. Stocking what you don’t sell will be the end of you. Remember an economic recession changes the demand for goods and services so you need to change the supply.
  • Depending on your market, you can often introduce lower cost items to sell. For example, if you are in a luxury high-end market your customers will most likely be unaffected by recession and so continue to buy. If however you are in a middle class market that is being affected by job losses your customers will often only be be able to buy down. Introduce similar, but cheaper stock.

3. Are You Pricing Too High in an Economic Recession …

Are you being undercut on price? Are similar but cheaper items selling quicker or are customers complaining about high prices. Often the first thought in business is to reduce prices to stimulate sales and it works, but at what cost?

  • If you are going to reduce your prices you must first reduce your production or purchase costs. If you don’t then you are making your problem worse.
  • If you are thinking of reducing your prices, make sure that you first understand the reason why sales are slowing. It might not be price.
  • Look at the alternatives to reducing prices. Marketing, advertising and packaging can all help increase sales without a price reduction and do not eat away at your profit margin.
  • Correct pricing during times of economic recession is vital, but lowering prices is not always the answer.

4. Staffing Levels – have you too many people to survive an economic recession …

Not enough work to keep your staff busy or having difficulty in making payroll. So what do you do? Cut staff?

Cutting staff is often the first thought when there is a need to reduce costs and sometimes it is actually necessary in an economic recession. However, I have always felt that getting rid of good people is not only wasteful but often leaves a bad taste, so, before you do that, think …

  • Remind yourself of the reasons that you employed your people in the first place. What has changed.
  • Lay it out to your staff why you are thinking of downsizing. Have they any suggestions to help prevent this.
  • Can you get some of them to take over certain aspects of your work and allow you to concentrate on saving the business.
Good staff can be the making or breaking of a business and surviving an economic recession can mean the management and staff all have to pull together.

Make sure you look at every opportunity to include your existing staff in the survival process before the stress of insufficient orders and low cashflow forces you to wield the knife.

Surviving an economic recession, be it a US recession or any other recession means getting lean, cutting out the fat and concentrating on what still brings in revenue, to avoid business failure. Do this from the first signs of trouble and I would suggest that you will survive any economic recession, and come through it leaner, meaner and far stronger for the future of your business.