The global financial crisis (caused by several crucial factors that are maybe proverbial for most of us) that brings down the world’s economy is a devastating situation especially for the business world. The growth and development of business may have both direct and indirect associations and interactions with the world’s economy. Enormous discussions have revolved around the effect of a struggling economy to businesses. The many financial pitfalls and other effects that loom during a straggling financial system can take devastating toll on the interests and investments of many entrepreneurs. So, what becomes of businesses during an economic crisis? What are the burdens faced by entrepreneurs during economic hardships? How can businesses, particularly small-scale businesses, cope and survive this crisis?
Then again, I have to stress that the effects of the low economy to businesses varies. The impact of the struggling economy to a retail store may differ from a company manufacturing and selling high-end products. However, either way, businesses are facing this economic crisis head on while hoping against all hope that they can weather this desolating financial storm.
Economic Crisis’ Effect To Business
A bad economy can do a vast number of effects to both large and small businesses. Since it can take a great deal of time for an economy to recover, businesses who were affect at the start of the downturn will likely endure the negative effects of the bad economy for a longer period of time (given that it seems the crisis is escalating). The slow recovery time will likely be a problem especially for companies that have obtained “large blows” from the bad economy. As the bad economy (economic recession) runs its course, many businesses will have to make sacrifices and alterations to their operations to cope and survive.
As the revenues and profits of businesses fall, some of these companies will lay off many of their employees or freeze their hiring entirely. Because of the financial crisis, many businesses will cut cost by limiting research and development, ceasing purchase of new equipment, and terminating new product roll outs. Businesses will likely reduce their expenditures in marketing and advertising. All the cost-cutting measures can definitely affect businesses both large-scale and small-scale.
When the economy is bad, small-scale businesses will take the first hit as they are in the frontlines (still large business do also get affected). Small businesses usually employ a large variety of professionals that cover all ends of the work spectrum. Small-scale businesses tend to be the first ones to get the bad blow from the economic downturn they do not have the sufficient funds to backup their business and keep them afloat during the financial crisis.
Here are some clear-cut effects on businesses brought about by the economic recession.
- Stocks Fall and Dividends Decline. As revenue and profit decline, the stock price of a manufacturer will also plunge, coupled with the fall or loss of dividends. This will likely be a common scenario among large companies during the economic depression. Their shareholders, as well as for their board, will likely become frustrated with this situation and will tend to make changes in the company’s management team. If further plummet on stocks and decline of dividends occur, investors will likely pull out their investments on struggling companies and seek to invest in better-performing stocks.
- Impairment in Credit leading to Bankruptcy. With the delay of customers’ payment (for money owed in companies) and the low revenues during the economic crisis will probably lead affected companies to pay their bills and debt in a slow manner, late, or smaller increments than the original credit agreement. The affected companies’ late or delinquent payments will lead to reduced valuation of their debt, bonds, and ability to obtain financing. In long term, a company will experience bankruptcy if their debts will not be serviced and can’t be repaid as agreed upon in a lending contract.
- Employee Lay-Offs. Part of the cost-cutting measures of companies during economic crisis is employee lay-offs. Business owners will have to let go of some of their employers that will result to more work for the few remaining employees. The expected rate of productivity of the employees will increased. However, because of increased workload and hours of work, employees will have low morale. Work will be harder, yet wage increases will become impossible. The possibility of more lay-offs will always be there since recovery from the economic crisis will indefinite. Furthermore, companies will be forced to (sometimes) reduce wage and employee benefits just to keep the company afloat during the crisis and to save jobs.
- Cutbacks on Quality of Goods and Services. The quality of the services and products offered by businesses is largely affected by the straggling economy. Because of a company’s cost-cutting measures, the quality of their goods and services will be compromise. This will lead to the reduction in the desirability and saleability of its products and services, thus leading to a variety of repercussions (such as closing of plants, discontinuation of poorly performing brands or products, etc.). This is one of the leading manifestations on businesses in a steep economic recession.
These are the main effects on businesses brought about by the current economic crisis. We need to remember that recessions will come and go. Some may be severe than the last and can last longer than others. Although past economic crises ended differently, a recession will always have an end and recovery must follow. Business owners need to have the correct business mindset and right business advices from competent people, fixed with the exact discipline and enduring perseverance to survive the current economic turmoil.
What Should Businesses Do During An Economic Crisis
If you are attempting to ride out from the current tough economic times, here are some of the simple ways that you can do. These tips are likely be very suitable for small-scale businesses (which have been hit the hardest), yet large companies can still benefit from these.
- It is best to be frank and straightforward with your employees. Let them know how your company is doing. Give them the impression that it is on your best interest and priority to keep them on board. You need to listen to them, as well as to communicate with them regularly. Listen to what they have to say. Sometimes, your trusted employees will have the most helpful and useful suggestions and feedback to keep your company on its feet. You need to remember that your employees need their job so the success of your company will also be one of their primary priorities.
- Maintaining a positive attitude during the time of economic hardship can greatly help. It will add more to uplift the morale of your employers and gives more positive atmosphere in your workplace. When you and your employees see the positive side of the low economy, quality of products and services, as well as productivity, will improve and increase.
- Even with the struggling economy, you must make sure your company or brand stand out from the rest. Capitalize on your existing customers and potential clients. Make sure that you maintain your best customer service or better improve it if necessary. Better customer service will draw in more customers and strengthen customer loyalty among existing clients.
- There is no better time to try new, innovative, and effective techniques to set your business afloat during the struggling economy. You will never know that those new techniques will set you apart from all the other brands and companies in the industry you are in. You can be creative even when the economy is low. You can even tap on a new customer base with your creative and new techniques. Inspire your customers to stay loyal when you become inventive and imaginative.
- Due to the economic crisis, many businesses will cutback on their marketing and advertising campaigns. But, this might be detrimental to you and your company. You might risk putting your brand under the radar of your customers. Instead of cutting back on marketing and advertising, you can explore some cheap or even free marketing strategies.
The bad or struggling economy doesn’t mean that it is the end of your business. The tips I shared can help you bounce back and stay afloat. There are more strategies to help you compete in this low economic climate. Start with those that suit your business. The effects of a struggling economy can be crippling, but you need not worry and lose hope because after the crisis comes recovery.
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