Published April 1, 2009

5 Effects of Recession: Impact of Recession That Could Ruin Your Business

  1. Exorbitant Credit Card Debt.

    A recession is normally accompanied by inflation - and this means that your expenses could rise quite a bit, even as your income is under pressure.

    If you regularly make payments by credit card, then you might lose track of how high your expenses have shot up as compared to your income; and one not-so-fine day could find you unable to find the money to pay off your credit card debt.

    If this happens, a lowered credit rating could make it very difficult for you to get approval for new loans, forcing you to resort to loans where the interest rates could be quite high - which could literally lead you from the frying pan into the fire.

  2. Fewer Customers - and Lower Income.

    As recession takes a choke hold on the economy, you might find that there are fewer new customers walking through the doors of your business. Your existing customers may also seem to have shut their wallets tightly as they also try to control their rising expenses.

    Unless you manage to think up ways to increase your sales as well as your profits, the resulting loss of income and decline in profits could be detrimental to your small business - and could ruin you.

  3. Putting Your Mortgage in Jeopardy.

    If your small business has a retail location that has a mortgage loan on it, then you could be in deep trouble. This is because lenders have been steadily hiking their interest rates in a bid to cover their losses due to other borrowers not being able to pay their monthly installments.

    If your current mortgage is about to end, then you could find that there are no lenders available who are willing to provide you with a new mortgage at low interest rates.

    This could put enormous pressure on you, as you would be forced to decide on which loans to clear off first - all on a steadily-decreasing income.

  4. Can You Keep the Lights On?

    As prices of fuel increase exponentially, accompanied by rising food, gas and electricity prices, you might find it difficult to sustain a business, especially if you run it from a physical location.

    Since you cannot eat less everyday or put less fuel in your car, this increase in your monthly bills, accompanied by a sharp decline in your income, could ruin your small business.

  5. Where Oh Where Have My Savings Gone?

    If you have taken out a loan for to run your small business, then you could be in deep trouble if you do not have adequate savings to fall back on if you require some money to tide you over the economic, crisis.

    It is essential to have a proper savings plan, where you put in a part of your income aside year over year. If you do this, when bad times such as the current recession strike, you have a backup plan to ensure that you do not lose your hard-earned assets and some savings to fall back on.

Many of the above factors could be outside your control - but if you manage to bring down your expenses and increase your sales, then you might be able to prevent the current recession from ruining your small business.