5 Effective Tips On How To Save Your Business During A Recession

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5 Effective Tips On How To Save Your Business During A Recession
5 Effective Tips On How To Save Your Business During A Recession

In 2019, a new virus began
appearing in headlines all over the world. The main reason for that is its
unexpected speed of transmission. Wuhan, China is the first place where the
virus was found. Since December 2019, it has travelled to the United States and
the Philippines. The official name for the virus is COVID-19. As of now, it has
affected more than 719,425 people in more than 100 countries. Additionally,
coronavirus caused more than 33,000 deaths worldwide.

Despite the global panic in the
news, the chances of getting affected by coronavirus are low unless you have
been in contact with someone who has been diagnosed with this condition. In
addition to that, you can prevent yourself from this virus if you take simple
precautions. It includes wearing a facial mask, wearing medical gloves and
washing your hands regularly for at least 20 seconds.

The 2020
Stock Market Crash

In the beginning of February
2020, no one could even imagine the effect of coronavirus on the global
economy. Eventually, COVID-19 caused the 2020 market crash. On March 11, the
World Health Organization (WHO) declared the
disease a pandemic.

However, the 2020 stock market
crash began on March 9 with the largest point drop for the Dow Jones Industrial
Average in history. It was followed by further record drops on March 12 and
March 16. This 2020 stock market crash included the three worst points drops in
history of the United States.  The
aforementioned drops were caused by global fears about the spread of COVID-19
and oil price drops.

In the vast majority of cases, a
stock market crash leads to a recession. The chances of recession increase if a
stock market crash is combined with a pandemic or an inverted yield curve.
During a stock market crash, the value of a person’s holdings in the stock
market dramatically decline. As a result, a lot of people start panicking and
selling their stocks to avoid losing more. Finally, during a huge sell off, the
supply increases leading to further price drops.

Apart from a stock market crash,
the COVID-19 pandemic caused a quarantine in the vast majority of countries.
Thus, a lot of companies had to close their operations. Because of the fact
that the vast majority of companies closed their operation, a record 3.3
million of Americans filed claims for unemployment in the last couple of weeks.
All the aforementioned could easily trigger a looming recession.

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The Effects
Of COVID-19 On Business

During the past 2 months,
coronavirus has been the main topic of discussion. Based on the report of
Google trends, searches including “recession” doubled in the past few weeks. As
was mentioned above, the COVID-19 pandemic forced a lot of countries to
implement a quarantine. Because of a quarantine, a lot of companies around the
globe had to close their operations, which in turn, caused a lot of people to
lose their jobs.

The only way businesses can
generate money now is by selling online. Although, there are a lot of companies
that operate in an industry where online sales are not applicable. Because of
the fact that companies are not allowed to produce products during quarantine,
they do not have anything to sell and thus, they are not able to generate
revenues. COVID-19 has affected both business owners and employees all over the
world.

Ways To
Save Your Business During A Financial Crisis

During any crash or recession,
the main focus should be on damage control. This is the point when business
owners have to make changes to the strategic
business planning
and make use of crisis management plan. Below, you will
find several effective tips that will help you to save your business during a
financial crisis.

1. Determine
The Severity Of Problem

When a company’s revenues drop,
it is time for the management of a company to determine how bad the situation
is and evaluate the situation in the industry. It is highly important to
understand the effect of a recession on a specific industry as some industries
might not be too sensitive to it. Healthcare industry is a great example of
that where there is little to no exposure to recession risks. Determining the
company’s own risks associated with a recession is crucial. This will help a
company to identify the actions that need to be taken in order to survive
during a recession.

2. Try To
Generate As Much Cash As Possible

Specialists say that the key to
surviving a recession is cash. Businesses that offer trade credit must be
extremely adamant about collections. It is extremely dangerous during a
recession to send products without cash coming in. An ideal situation would be
receiving a payment before shipping the product to the customer.

Another way of generating cash is
making use of new sales channels. For instance, if you have never used an online sales
channel, a recession is a perfect time to try it. You should try as many sales
channels as possible in order to generate cash. It is also recommended to sell
products with a discount even if your profit margin falls. Cash is extremely
important and it will help you to stay in the market during a recession.

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3. Decrease
Your Operating Expenses

Companies should also reduce
their operating expenses when sales drop significantly. That normally involves
layoffs or furloughs. Companies that are able to act quickly and adjust their
business processes are normally the ones who survive a recession. However,
before firing your employees, you need to ensure that it will not harm any
business processes.

4. Take A
Closer Look At Your Inventory

Recession is a good time to
monitor your inventory closer. Because of the fact that demand for the products
declines significantly during a recession there is no need to hold high levels
of stock. High stock levels tie up the money in the inventory. Furthermore, if
you have products in your stock that are not selling well you should get rid of
them. Make discounts on these products and get rid of them. Inventory of these
products should be liquidated. Money tied up in inventory might have better
use.

5. Eliminate
Capital Spending

If you had any capital spending
plans, they have to be put on hold during a recession. That might cost more in
the long-run but it is more important to conserve cash in a short-term. In
addition to that, make sure you maintain credit lines as large as possible even
if you do not have any intention to borrow. Borrowings will help the company to
stay in the market and give a chance to use a recession to improve its
competitive position.

An ideal situation is when a
company enters a recession in a good financial condition. In that way, a
company will be able to acquire other companies or equipment at extremely low
prices. It was already historically proven that the most successful companies
tend to acquire other companies during downturns. That is why it is so important
to keep your credit lines.

Companies that are able to
survive a recession and take advantage of buying opportunities are most
respected by banks. Banks take advantage of healthy companies that expand their
business when other companies are not borrowing.

By following the aforementioned
recommendations your business will have a chance to survive a recession. Keep
in mind that companies who are able to adjust their business processes quickly
are the ones that most likely will survive a recession.

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