September 2, 2020

How do recessions impact a business and how to create a recession strategy?

What is a recession in a business?

A recession is a period of negative economic growth. This can occur at any point, in the European Union and the USA, a recession is officially defined as two consecutive quarters of negative economic growth adjusted for real GDP.

Recessions can last for a matter of months or years, depending on the severity of an economic situation. In the past, the UK has had four periods of a recession; the most current recession is the Covid-19 pandemic effect on the UK’s economic growth.

How do recessions affect a business?

Although a country can have a recession and recover from it, there can be significant consequences for a business that is long-lasting.

The main effects of a recession on a business are:

• Loss of profit

• Not having access to credit

• Loss of demand

• Staff reductions

• Marketing Constraints

Positive effects of the recession on a business

Whilst a recession is viewed as a highly negative business term, there are some positives to arise from this situation.

As unemployment rates increase, workers will become more productive to keep their jobs; this comes with the expense of morals as a smaller workforce may require staff to stay for longer hours. Recessions can cut your competition if your business survives the recession, it’s a strong indication that your business is running the right way.

How to create a strategy for a recession?

There are several elements to consider when creating a plan for a recession:

1. Define a time frame for each scenario.

• With a timeframe put into place, this allows the strategy to be more detailed and more well equipped.

2. Establish a primary variable in your scenarios

• What is the main aim you want to achieve during the recession strategy? With this objective being aimed for it allows a more precise and more concise plan.

3. Prediction of the Scenario

• The prediction is essential for the strategy; this is predicting the best case, worst case and medium case scenario for the business. Therefore, all ground of the business is evaluated depending on the situation.

Evaluating the significant factors which may affect the recession:

1. Social Dynamics

• Looking at the shift in target demographics for purchases.

• How influential is the target audience for the business?

2. Economic Issues

• Keeping a close watch on macroeconomic trends, this could impact the strategy if not considered.

3. Political Issues

• Also, political issues are essential; for example, new laws or legislations that have been introduced could impact the strategy.

Therefore, with these elements included in the recession strategy, this creates a reliable and efficient plan, to ensure that your business is well prepared for a recession.

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