5 Effective Tips on How to Save Your Business During a Recession

0
234
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.

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.

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.

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.

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.

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.

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.