What Does a Recession Mean for Businesses?

With the Bank of England’s warning of a looming recession, it is understandable that business owners are feeling some stress and anxiety. It is expected that the UK will enter a recession in the last few months of the year, and it is thought that this could be the longest recession since the global financial crisis. This post will look at what exactly this means and what a recession will mean for businesses.

 

What is a Recession?
 

A recession is two consecutive quarters of decline in GDP with a significant decline in economic activity. The last UK recession was in 2020 in the midst of the coronavirus pandemic, but it is thought that the looming recession will be more severe with predictions of a decline of almost 1% in the size of the economy in the last 3 months of 2022 and shrinking further in each quarter of 2023.

 

What is Causing the Recession?
 

There are a few factors that are at play and contributing to the upcoming recession. Inflation is the main factor, which means that people are spending less money (inflation is predicted to reach 13% before the end of the year). You then have the energy crisis, fuel crisis and wage stagnation resulting in less economic activity. Other countries around the world are also struggling and the risk of recessions in the US and Europe are rising.

 

What Does it Mean for Businesses?
 

A recession is a worrying time for both businesses and individuals. For businesses, recessions make it difficult to maintain usual sales, so profit is often reduced, and businesses often have to find ways to make cuts to manage. Unfortunately, this can mean that redundancies can be essential during a recession, and this is never easy. This can also lead to a reduction in stock prices and dividends, a reduction in cash flow and it can be harder to access credit.

 

How to Manage
 

So, what can you do as a business owner to manage during this worrying time? It is always smart to start cutting costs and to try and find ways to do this without making anyone redundant or impacting the quality of the product/service that you provide. You will want to utilise your existing talent, so staff training and team-building activities can be helpful during this time. 

 

It is also helpful to utilise services from specialists like New Street Consulting Group that can help you to find the right people to fill a role that will improve your business and can help to maintain KPIs even during a recession. Crisis planning and having an emergency fund in place are also key for managing a recession. 

 

Hopefully, the advice in this post will help you to get prepared for the impending recession. It can be a worrying time for business owners, but there are steps that you can take now that can make the recession easier to manage.