• Charles

How Companies Survive In A Downturn?

Updated: Apr 8, 2019

According to the National Bureau of Economic Research (NBER), a recession is defined as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in the real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales". More specifically, a recession is defined as when businesses cease to expand, the GDP diminishes for two consecutive quarters, the rate of unemployment rises and housing prices decline.

What causes recession or trigger it? There is much reason why an economy enters in the recession. But the main recession is simply the fact that businesses are unable to grow and instead of growing, more business are winding up and thus more jobs are lost, and the effect is vicious and spiralling with a domino effect.


Here are the some causes of recession:


1. Falling housing prices and sales. Throughout the world, this has been one of the causes of the recession.


2. High-interest rates. When rates rise, they limit liquidity, or the amount of money available to invest. Businesses will not be able to have profits or may even make losses if they cannot earn enough profits to pay the interest. When they cannot pay up, the wind-down and when many businesses close down the economy tanks.


1. A stock market crash. The sudden loss of confidence in investing can create a subsequent bear market, draining capital out of businesses and spiralling a recession. 


2. Deflation. The falling of prices can trigger massive business winding up and cause massive employment loss.


3. Etc. There are many causes that can trigger an economic recession.


There are several rules or tips by which companies can successfully survive a recession. These are as follows:

  • The first and foremost thing which is necessary, is to remove or reduce or refinance your business debts. Lowering your debts and lowering the interest of your debt is the fastest way to reduce your liability and to stay afloat.

  • It is important to reduce the cost of your business operations. It is prudent to actively keep track on all expensive business activities to gauge their effectiveness or return on investment. This can be possible if a system of a key indicator is installed. This should easily track the business and should also issue reports daily, monthly or on weekly basis for large businesses. Business should track the profits and losses of each expensive business activity regularly. These monitoring will help the business holders to pivot on the products/services which are making the most profit and reduce high cost activities on unprofitable products/services.

  • Cash Flow is the key to survival during hard times. If you ignore your cash flow and breach the forbidden, you will crash and go bankrupt. In recession, many businesses will owe your business payments. They do this either without a choice or purposely. Both small and big business practice the art of delaying payments during period of crisis. The longer payment period businesses stretch, the longer they survive. However, this may destroy your business’s reputation. Thus, do not stretch your payment period unless you are really facing a crisis.

  • Restructure your firm. This is the harshest method. Close down unnecessary departments and retrench unproductive employees. You must do it with tact and diplomacy or else the morale of your entire organization may be affected and once your retained employees start to distrust your organization’s stability, they will talk among themselves and start to look for new jobs thus creating high turnovers of productive staff. The above some strategies to help your company stay afloat during crisis.

These are as follows:

  • The first and foremost thing which is necessary is to remove or reduce or refinance your business debts. Lowering your debts and lowering the interest of your debt is the fastest way to reduce your liability and to stay afloat.

  • It is important to reduce the cost of your business operations. It is prudent to actively keep track on all expensive business activities to gauge their effectiveness or return on investment. This can be possible if a system of a key performance indicator is installed. This should easily track the business and should also issue reports daily, monthly or on weekly basis for large businesses. Business should track the profits and losses of each expensive business activity regularly. These monitoring will help the business holders to pivot on the products/services which are making the most profit and reduce high-cost activities on unprofitable products/services.

  • Cash Flow is the key to survival during hard times. If you ignore your cash flow and breach the forbidden, you will crash and go bankrupt. In a recession, many businesses will owe your business payments. They do this either without a choice or (deliberately) purposely. Both small and big business practice the art of delaying payments during such period of crisis. The longer payment period businesses stretch, the longer they survive. However, this may destroy (or disrupt) your business’s reputation. Thus, do not stretch your payment period unless you are really facing a crisis.

  • Restructure your firm. This is the harshest method. Close down unnecessary departments and retrench unproductive employees. You must do it with tact and diplomacy or else the morale of your entire organisation may be affected and once your retained employees start to distrust your organisation’s stability, they will talk or murmur  among themselves and start to look for new jobs thus creating high turnovers of productive staff.

The above are some strategies to help your company stay afloat during a crisis.

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