The economic effects of a recession are far and wide both within a country and around the world. Recession is a time when there is negative GDP growth in the country for two consecutive quarters. In this article, we will be looking at some of the effects of a recession on both large and small businesses.
The first effect is employee lay-offs and reduction in the benefits offered by the company to current employees. In a recession, companies are not making as much profit and income as previously, and as a result, they cannot afford to maintain their workforce. Therefore, companies will lay off non-essential employees and thus increase work time and work load of the remaining employees. This will cause a lot of stress and so cause employee morale to suffer and decrease.
Next, there will usually be a reduction in the quality and quantity of products and services being offered by businesses. Since businesses will have to cut costs as much as possible while still trying to make as much profit as possible, they will usually reduce the quality and quantity of their products. This may mean reducing the amount in the packaging, using cheaper raw materials, limiting amounts produced etc. This will of course, affect the image of the brand and company, but may still be done to keep the company in business.
Thirdly, companies will drastically reduce or completely cut their marketing and advertising budget. This will become an unnecessary expense which will result in the downfall of advertising agencies as well as consumer interest. Only the largest and most popular brands will be able to maintain their consumer interest and business will be a matter of survival of the fittest.
Entrepreneurs will temporarily become extinct since the market would be too difficult for new businesses to grow and thrive i.e. almost impossible. Banks and other lending institutions would be greatly discouraged from lending and giving out loans to new business people, venture capitalists or entrepreneurs due to the depressed economic climate.
For larger companies, the declining profits will cause stocks to plummet and dividends to greatly decrease. This will create a competitive internal business climate where shareholders become emotional and the whole upper management team inclusive of the CEO are called to be replaced.
The company’s accounts receivables will also be affected as people and other businesses that owe money will be very slow to repay due to the recession and in some cases be unable to pay at all. As a result those businesses will be unable to pay their own bills and so increase the company’s debt which will incur delinquent fees and penalties as well as significantly affect the company’s ability to receive financing. Eventually, if the recession doesn’t lift in time, many businesses will become bankrupt.
The effects of recession on businesses both large and small are very serious that not only affect these corporate entities but their unfortunate employees greatly. However, a recession doesn’t last forever and when it does lift; economic prosperity is usually not far away.