What is a recession?
In economics, a recession is a business cycle contraction, when there is a general decline in economic activity across the market, lasting more than a few months, visible in real GDP, real income, employment, industrial production, and whole-retail sales. Recessions occur when there is a widespread drop in spending. This may be triggered by various events, such as a financial crisis, an external trade shock, a pandemic like covid19 or the bursting of an economic bubble.
What governments do in a recession?
Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply or increasing government spending and decreasing taxation.
What companies do in a recession?
Protect cash flow! As long as the business exists, expenses will be there. So to survive the storm companies protect their spending by only buying and investing in necessities.
Focus on key strengths! Drop the extras and focus on what you do best, that is most profitable to come out on top by the end of recession. This is also in line with protecting cash flow because strengths of the company are what bring most cash in the company.
Make sure your customers stay your customers! Companies make sure they don’t lose customers to their competition as they know customers bring cash and keep their business alive.
Customer collection! Well even if you try to keep all your customers during recession its practical that you will lose some. So companies don’t stop collecting new customers, instead they increase and implement new strategies to get new customers.
What should you do in a recession?
Get cash! Having extra cash at hand is an advantage, so do accumulate more of it. If not able to do it, there are several ways to make it happen. Stop buying stuff and start selling stuff you don’t need. Cancel any subscriptions or services you don’t need and entertainment services. And make sure you redirect the saving from all those efforts into loading up cash.
Improve your skills! A lot of people are a going to be losing jobs in a recession, in order to not be one of them, improve your skills to be relevant and a key player in your company.
Make investments! During a recession assets are generally way cheap for their value, so it’s the best time to invest. Plus it will help the economy start moving again.
Create a side hustle! Business or freelancer if you have any skills to sell to the market for extra cash. That is what you should do to increase your cash deposits.
Conclusion
In a recession cash is king since recessions occur when there is a widespread drop in spending. So to reverse the effects of recession on the economy, we need to maintain the continuity towards healthy economy by using cash, that means earning, spending and investing cash.