Well sitting in the 21st century the most important finance
topic that comes to my mind is recession. In this blog I want to discuss about
how recession had made a global impact on business and private sectors. Economists
over the year had defined recession negative growth in Domestic Product or GDP
in two separate consecutive quarters. In
other words recession declines all the economic activities around the globe. There
could be several effects of recession such as a sudden fall in the industrial
production, loss of job, immediate decline in real income and there could also
be a fall in the consumer spending. These impacts could have a negative effect
in both the small and large business industries.
I am going to consider a small example for explain the
impact more briefly. Suppose there is a big business firm suffering the impacts
of recession. Both profits and sales revenue decline in this case. As these
happen the company will immediately cut down the recruitment of new employees. Therefore
a new problem of unemployment rises out of it. The company at this point of
time could take two possible actions. It should cut or slow down the
recruitment process or completely freeze it. Other than this the company has to
keep several other things in mind such as improving the bottom line or cutting
down costs. It therefore stops buying new equipments for the company, stop new
products rollouts and curtail research. The company makes sure that the amount
spent on advertising and marketing is also reduced. Other business will
immediately be affected by these cost cutting methods. This is because many
small and big companies supplies goods for bigger manufacturing industries. I hope that this example clarifies people
about how recession could affect the process present in the system.
I want to talk about Slumping Dividends and Falling Stocks
in the next category. There is a decline in the manufacturer’s stock price. It
therefore comes in the quarterly earnings reports. In certain instances there
is an entire disappearance in the dividend. This is a major reason for
shareholders to become upset. The company should look for some major changes
now. A new board of director should be
appointed along with a new advertising agency. These reforms are quite
necessary. In this case the role of individual investors is to reinvest and
sell the proceeds. This may be turned into better performing stocks. This could
ultimately result in depressing the company’s stock price. The 401(k) and
profit sharing plans will also share an impact.
AR or Account Receivable is also impacted during recession. The
customers pay the owed money but the clearance is both slow and late. Some the
customers fail to complete the payment providing a hindrance to the company. In this case the company will be hugely affected
and it s revenue greatly reduced. Due to this the company pays its own bill on
a slow process making the credit increment smaller than required. The valuation
of the company‘s debt is greatly reduced through delinquent and late payment. Also
the ability and bonds to obtain financing is greatly injured. Therefore the
most damaging factor is that the credit rating is decreased and further
borrowing is prevented. To recover from this case the company has to refinance
or restructured. This means that the company will have agree upon new terms and
condition. These have to be agreed by creditors. In this case both debts have
to be repaid and serviced which will help in ensuing bankruptcy and thereby
protecting the protecting the company from its creditors. Therefore I think
there are two options open in front of the company. They either have to go out
of the business or reorganize themselves.
The next step I personally find more distressing because
there is a huge cut off on employees and most of the people working there have
to get unemployed. Therefore a huge pressure is employed on the rest of the
workers. More work has to be done with minimum payment. More and more problem arises
out of this situation. Service along with quality of the goods is reduced or
cut down. The customer access is also reduced. No matter what the reason is one
should keep in mind that recession does not last forever. Before taking any hasty discussion one must
gear up for the upcoming challenges ahead.
About Author: Melisa Lissa is a business finance specialist providing financing advice and assistance to small and medium sized businesses. To get more information on the topic of fast personal loans go visit Personal Loans Melbourne.
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