Published April 2, 2009

7 Recession Effects of the Recession Cycle

At present, the economic cycle has entered into a recessionary phase, and this could have a negative impact on your business.

Given below are 7 effects that the economic cycle can have on your business.

  1. Consumer Spending Might Go Down.

    As consumers tighten their purse strings and spend their money just on essential items, there could be a decrease in your sales, especially if you are dealing in non-essential items.

    Even if you do manage to maintain your sales, your profit margins could still come down. You might have to devise new and innovative methods to attract customers towards your business.

  2. Competition Could Get Fierce.

    As the economic cycle enters into a recession, the competition will get fiercer since there will now be many competitors fighting over a smaller pie.

    But take heart, because this cycle will also result in your weaker competitors closing shop.

  3. Your Expenses Will Go Up.

    Along with your sales coming under pressure, your expenses will also go up as inflation starts pinching your wallet.

    This will result in you tightening your financial belt, as your business becomes part of this downward cycle. You will have to ensure that you give priority to those expenses that directly affect your business over those that do not.

    If you don't have a lot of savings, then spending on luxury items through your credit card is a strict no-no.

  4. Your Business Will Become Unpredictable.

    The downside of this economic fluctuation is that your business will become unpredictable.

    At times, you will find that customers have vanished into thin air - while during other times, you might think that you experiencing a sales boom.

    It pays to have a cool and calm head during such fluctuating periods.

  5. Interest Rates Might Come Down.

    During a recession, interest rates could come down; and in case you need to apply for a loan, then you may not be faced with high interest rates.

    The only problem is, since there will be a liquidity crunch in the monetary markets, you could have a tough time qualifying for a loan as lenders' qualifying standards go invariably higher.

  6. You Could Get A Chance To Invest Outside Your Business.

    A recession could induce the stock markets and property markets to fall drastically.

    This could offer you a chance to invest in stocks or property due to lower prices. And once the economy moves back into the boom cycle, then your investments will be worth quite a lot more.

  7. Your Employees Could Demand Higher Salaries.

    As inflation eats into the pockets of your employees, they could ask for higher salaries in order for them to maintain their lifestyles.

    You might then have to let go inefficient employees in order to maintain your payroll at the same level.

Just as evolution in animals dictates that only the fittest survive, in an economic downturn, the cycle dictates that it is the survival of the smartest. You will need to adapt, save and earn more if you want your small business to come out of the recession unscathed and stronger than ever.