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What Are the Short-Term Impacts of a Recession?

Recessions are always coming; the question, obviously, is "When?" ITR specializes in the "when" as well as in how to prepare for the downturns. We can also help you with the impacts of a recession on your business. While there are many short-term impacts of a recession, two are most common:

  1. Thinking “Cash is king”
  2. Having work expand to fill the extra time

Let’s look at these in order. First, cash is not always king; sometimes it’s a tool to be used!

Recessions, even mild ones, bring on uncertainty and some trepidation. The trepidation will often slow down business leaders from making critical decisions; they will tend to favor holding onto cash. There is no doubt that "cash is king" in many circumstances, but in a mild or relatively short-lived downturn, cash is a tool, not "king." The uncertainty and attendant desire to hold onto cash will often leave the business "behind the curve" when the economy and the company trough and business picks up again. To spend the money then is to spend it too late to get maximum value.

This is an example of how ITR Economics’ Management Objectives™ can often be counterintuitive. When you have the data you need to optimistically and methodically steer your business through a decline, the negative environment is powerless to cloud your thinking.

Now, to the second point: Don’t let the slower times during a recession negatively impact your production levels during times of growth!

Recessions can lead to bad habits within a company. A slower-paced environment may result in work expanding to fill the time; this could be evident at any and perhaps all levels of the workforce. This slower pace can become the new norm, even after the business picks up speed again. The lowered level of productivity can be a challenge to overcome.

Keep this in mind as you see your production levels decrease while work hours remain consistent.  It could be a great time to seek training initiatives that you may not have otherwise had time to implement. This can be a mechanism to both keep your productivity higher during slower times and gain new levels of professional development to put to use during the next period of growth.

 

Alan Beaulieu
President