by Jamie Witter

If you have been paying attention to the news, conversations between your fellow citizens, or simply been in a social setting in the past 5 months you have probably heard that either a) a recession is looming or b) a recession is already here. Although in general the American public is fearful of a recessionary period there really isn’t anything that business owners cannot confront. Upon reading this you may be asking yourself: “Well Jamie if there is nothing to fear, why is everyone so scared?” The simple answer is just that during times of uncertainty human beings have a tendency to over-react and as a result panic ensues. To counter this, the purpose of this article will be 1) to show that announced recessionary periods aren’t necessarily to be feared and 2) to let you, the readers know, how you can not only remain profitable, but also expand your business during recessionary periods.

Since 1854 the United States of America has encountered 32 cycles of expansions and contractions[1]. The average contraction, or recessionary period, lasted 17 months while the average expansionary period lasted about 38 months[2]. Fortunately, since 1945 the average recessionary period has only lasted 10 months[3]. This shows us that since the great depression our economy has managed to withstand the shocks presented due to recession. This is a good sign; however it is made even better when we realize that “recession” is a matter of hindsight. What I mean by this is that macro-economists have a hard time identifying a recession when it is taking place. For example the 2001 recession was announced by the National Bureau of Economic Research (NBER) in November of 2001. This was a strange announcement because the recession ended the month it was announced. This is because unbeknownst to Economists, GDP growth would pick up in December (due to the boom usually experienced due to Christmas shopping)[4]. This behavior was also exhibited in July 1981 when the NBER announced the end of the recession from January-July of the previous year, and in January 1982 when it announced the beginning of a decline in GDP which began in July of 1981[5]. What this shows us is really that the NBER, the chief organization which monitors the American economy, really does not forecast recessions in an efficient manner.

Even with this news however we should not jump to conclusion and simply carry on with business as usual. There are a few things present in this economic downturn which may affect our Economy in a new and unexpected fashion. Fortunately this is a cause for careful calculation, and not necessarily a general panic. What we are currently experiencing is a simple market correction. In some schools of economics this should not be feared as this is simply the market clearing out inefficient businesses and bad investments. In our case this so happens to be the United States housing market and happens to be exemplified by the fact that U.S. home prices are forecasted to fall between 20% and 30%[6]. The effect of this is that many banks that have heavily invested in mortgage related investments may face declining values in many of the financial assets they have on their balance sheets.

Now you may ask yourself, how does this affect me? Simply put the average business will be affected by the ensuing liquidity crisis. This is a direct result of banks losing money and simply under investing to stave off the possibility that they may literally run out of cash. This crisis will have many different effects in our economy, but most importantly businesses simply need to know that 1) access to credit may be hard to come by and 2) consumers will have less access to cash and will also be more wary to spend what they have.

To take advantage of the macro-economic situation there are a few general pieces of advice that any business can follow. First it is in any business owner’s best interest to prepare a disaster management plan. What we mean by this is that, as a business owner, you should prepare for the worst, begin thinking about where you can liquidate your assets in a worst case scenario and/or look for ways to cut costs. Cost cutting can include looking at your staffing, as labor costs are important, or simply looking for substitute products. With this said one must not forget that this plan should be updated frequently depending on the macro-economic environment. Changes in the state of the economy are ever important, for example the recent lowering of interest rates by the Federal Reserve is important to some businesses that are heavily dependent on financing and would affect decisions pertaining to refinancing existing loans or simply paying them off.

Secondly, businesses can succeed by becoming a low cost provider. Shifting spending habits will benefit those businesses that can offer a service/product at a budget price to cater to lower available discretionary income. Depending on the size of your business recessionary periods are a great time to take advantage of your nimbleness in the market. Take advantage of uncertainty to find the optimum pricing level depending on the macro-economic environment and the fears of your competition.

Thirdly, businesses should remember to advertise. If you have taken care of the first two steps then advertising should simply inform your customer of what a good job you have down. Your clients should know that your offerings are as cheap as possible, that your quality has not suffered, and that you will provide them with dependable value in these times of uncertainty.

Lastly, confidence is important because recessionary fears lead some businesses to under invest in outlets that would create value. An important business rule however is that if something creates value, you should not avoid it as long as the costs do not outweigh the value created. Do not forget this, and remain confident. Understand that recessions pass and as a business owner your mission in the market is to provide what you can for your clients during these times of stress and uncertainty.

Now you may ask yourself, how does this affect me? Simply put the average business will be affected by the ensuing liquidity crisis. This is a direct result of banks losing money and simply under investing to stave off the possibility that they may literally run out of cash. This crisis will have many different effects in our economy, but most importantly businesses simply need to know that 1) access to credit may be hard to come by and 2) consumers will have less access to cash and will also be more wary to spend what they have.

To take advantage of the macro-economic situation there are a few general pieces of advice that any business can follow. First it is in any business owner’s best interest to prepare a disaster management plan. What we mean by this is that, as a business owner, you should prepare for the worst, begin thinking about where you can liquidate your assets in a worst case scenario and/or look for ways to cut costs. Cost cutting can include looking at your staffing, as labor costs are important, or simply looking for substitute products. With this said one must not forget that this plan should be updated frequently depending on the macro-economic environment. Changes in the state of the economy are ever important, for example the recent lowering of interest rates by the Federal Reserve is important to some businesses that are heavily dependent on financing and would affect decisions pertaining to refinancing existing loans or simply paying them off.

Secondly, businesses can succeed by becoming a low cost provider. Shifting spending habits will benefit those businesses that can offer a service/product at a budget price to cater to lower available discretionary income. Depending on the size of your business recessionary periods are a great time to take advantage of your nimbleness in the market. Take advantage of uncertainty to find the optimum pricing level depending on the macro-economic environment and the fears of your competition.

Thirdly, businesses should remember to advertise. If you have taken care of the first two steps then advertising should simply inform your customer of what a good job you have down. Your clients should know that your offerings are as cheap as possible, that your quality has not suffered, and that you will provide them with dependable value in these times of uncertainty.

Lastly, confidence is important because recessionary fears lead some businesses to under invest in outlets that would create value. An important business rule however is that if something creates value, you should not avoid it as long as the costs do not outweigh the value created. Do not forget this, and remain confident. Understand that recessions pass and as a business owner your mission in the market is to provide what you can for your clients during these times of stress and uncertainty.