The Impact of Recession on Business

Everyone in the country, and certainly all around the world, will certainly have suffered the recent worldwide economic downturn in one manner or another, either as an individual or as a business operator. It may not have had an immediate impact on your own career or your private earnings, but the knock-on result of companies dropping revenue will have influenced the monetary situation of the great majority of people. It was a really complex issue with far reaching implications.

The actual downturn now seems to be over, or is at the least on its way to an end, according to most economic experts. Although it might not yet be the occasion to celebrate having made it through the economic meltdown, it should be a period to begin looking ahead and preparing for a future within a stable economy. It is time to look for some recession opportunities.

Firms of all sizes, buying and selling in all sorts of marketplaces are no doubt going to need to change their operations in view of the economic depression. This may be after law is brought in to more closely govern and keep an eye on the action of worldwide financial companies. Many companies will also be considering ways to make themselves more robust and have the ability to withstand economic instability in the long term.

The Recent Recession

The recession of the early 21st century started in 2007 and slowly propagated around the planet over the following few years. Numerous economic analysts attributed the cause of the economic downturn to be the crash in the U.S. real estate market, which in turn affected the value of financial products tied into real estate resources.

This fall in value then uncovered the vulnerabilities of such a widespread system of credit contracts between international companies, particularly when much of the system was being backed by subprime lenders who were financial risks. A general lack of third-party control of the monetary services sector had permitted the development of a highly complicated web of high-risk credit agreements which depended upon a rising economy. Once the first debtors began to default on payments, the entire house of cards ended up being quick to fall.

The subsequent economic fallout saw many people lose their jobs and also lose their homes, whilst many big, global companies were forced out of business. Government authorities all over the world had to introduce radical financial packages to assist their own banking systems, and still now certain first world countries are fighting to make it through financially. Many consider it to have been the worst financial period since the depression of the 1930s.

All firms, like this firm providing hair fascinators had to take a slightly different approach to the recession.

The Impact on Business

It’s probably fair to state that the economic downturn had an effect on just about every enterprise around the globe. Particular company models will have been more able to adjust to the extra economic strain than others but they will have still experienced an impact at some part of their operation. If any key supplier or a major customer goes out of business then that will have a bad impact upon your own company.

Thousands of small and medium sized companies have been forced out of business because of the recent recession. Several of these situations will have been fairly simple; as the general public start to reduce their spending these types of businesses lose revenue, and since profit margins are often very slim in a competitive market place there was extremely little space to accommodate this drop. It is a straightforward case of supply and demand not meeting in the middle.

Other cases were not so clean cut. There were situations where one company in a lengthy supply cycle had been unable to survive and the knock-on effect would push every business within that supply chain to the edge of bankruptcy.

Job losses have obviously been a pretty delicate subject to the vast majority of us. It is believed that the present number of unemployed individuals in the UK is over 2.3 million (nearly 8% of the total countries’ workforce), and many of these will have been victims of the international economic crisis.

The End of Recession

It does appear that the downturn is on its way to an end though, and that can only be great news for business. Gross domestic product (GDP) saw a climb in the UK during the fourth quarter of 2009 and total unemployment numbers fell, both of which are signs of an economic system that is healing. This isn’t a perspective shared by everybody though.

Experts from the International Monetary Fund (IMF) have predicted that the UK financial system will actually shrink over the duration of 2010 and Mervyn King, the Governor of the Bank of England has warned of the threat of wide-spread unemployment continuing. When added to the prospect of a new or even hung government on its way into power in May 2010, in addition to the real need to decrease a massive fiscal deficit, the future is certainly not set in stone.

This uncertainty can be used as an advantage however, and companies which are prepared to take a few risks or that are prepared to alter their operations to cater for a more wary audience could be set to make good profits.

Generally, the adverse influence that has been felt across the gas and electricity price comparison market was a lot easier to tolerate than in certain alternative industries around the world.

Price Sensitivity

On the outside it may seem that the clear technique to use while the overall economy is recovering is to increase your own sales prices again to a level that offers your business some extra margin of comfort regarding operating costs. As the economy grows and people feel safer in their jobs they will really feel secure spending more cash, so price increases should be an easy thing for shoppers to take on.

Actually, many companies may find that they have to hold their selling prices as low as feasible due to the recently triggered price sensitivity amongst the general public. Most of us will have had to tighten our belts over the last couple of years, and simply because the hardest of the economic downturn seems to be over, we aren’t all ready to start spending freely just yet. This is a pattern that is hard to precisely quantify, however companies will want to be mindful of how their specific customer community feels toward spending.

The phrase price sensitivity represents how influential the element of price is to shoppers when they are purchasing a particular product. If a relatively large price shift, for example increasing the cost of a car by £1000, does not provoke a large drop in demand for that product then the product is said to be price insensitive. If a fairly modest change in price, say raising the price of a car by only £100, does see a decline in demand then that item is price sensitive. This exact same principle can likewise be applied to consumers themselves, and following a period of economic downturn people are more inclined to be price sensitive.

As a result, the marketplace at large will have great interest in the prices of the things that they are buying. Many people will be watching out for bargains for everyday products that they require, and particularly their grocery shopping. Several of these things are essentials however. When it comes to purchasing luxury goods, for example televisions, cars and holidays, the cost of the purchase is likely to be an much more important decision maker.

Businesses will be able to take advantage of this fact by using special discounts and price campaigns to lure new shoppers into buying their goods. Shoppers will be more likely than ever to move from their preferred manufacturers if the price tag is right, and firms which offer the best priced goods are most likely to stand to profit from this.

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Financial Security

People’s understanding of the economic system at large along with how it impacts us all has greatly grown in light of the economic depression. Prior buying decisions may well have been made in accordance to the properties of the item and its value, but there is a new factor that buyers will be considering now. Financial security.

Recession Proofing

Many businesses have endured bankruptcy in the aftermath of recession. This in turn has left thousands of buyers in a very poor situation. As individuals look to reinvest income into personal savings and shareholdings they will like to see that the business they are investing in has some type of defense against potential recessions.

Price Guarantees

One particular very visible feature of the recent recession in the Uk was the steep decrease in the interest rate. Once this change had worked itself through the high street shops and monetary services organisations several people discovered that they were either struggling as a result or reaping a financial benefit.

Shoppers that are looking to open new savings accounts or private pensions may be concerned that if the economic downturn does in fact carry on for much longer they will not be earning any considerable interest on their investments. In reality, the recession may even now take a turn for the worst and interest rates might fall again. In this situation, a savings product that offers a secured rate of return turns into a very appealing option.

The same could be said for consumers with credit agreements. If the recession is truly over and the global economy begins to recover more quickly than many expect, then it might not be too long before we see a growth in interest rates. This would mean that customers would have to pay much more each month for their mortgages and loans.

A similar approach was used by a number of businesses after the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. They would offer “price freezes” on their items for a particular time period in an attempt to retain their current clients and draw new customers in.

Conclusion

Whether the economic downturn is completely over yet or not, it has served as a timely reminder that no business can afford to become complacent in their own situation of survival. Company managers should constantly seek to consolidate their own position and improve their operations wherever possible. The companies which manage to make it through the economic downturn will have learnt valuable lessons.