A manager needs to:
Be familiar with the process of cutting down on the prices of goods to survive recessions. Not only do managers need to understand how to survive recessions, but they also need to understand how to take advantage of the downfall.
Table of possible options in a contiengency plan
| Expecting a downturn | During moderate downturns | During severe recessions | |
|---|---|---|---|
| capital spending | reevaluate | cut entirely or almost entirely | not only cut entirely, but consider selling assets |
| employment | slow hiring | freeze hiring, layoff generic production workers | eliminate future-oriented positions (e.g., R&D), keep sales personnel though not at previous levels, cut all other staff areas to the maximum extent |
| inventories | monitor closely | monitor closely, review for unnecessary inventory items | the same as the left |
| account receivable | tighten credit terms, set up a factoring (selling account receivables) relationship | collect as rapidly as possible, on the payment side delay to the extent possible | the same |
| financing | secure a larger credit line, delay payments to vendors, get some long term debt | consider stop paying dividends, keep good relationship with banks by disclosing the company’s condition early and fully | the same |
| lines of business | shut down unprofitable operations | the same |
Capital spending during this time needs to be reviewed. There is room for flexibility in the sense that there might be cost savings from capital spending. Besides capital spending, taking a look at the number of staff members should be next in line. The inventory needs to be monitored at all times especially if sale levels are decreasing.
Capital spending comes to a stop. Employees who are typical workers and can be replaced could be the best route to pursue if layoffs are crucial during this time. Accounts receivable need to be obtained and credit should be secure.
Steps are as listed 1. Capital spending retracts and asset sales are reevaluated. 2. Employees need to be laid off. 3. Sales personnel remains 4. Key steps that are mentioned in the previous sub chapters
Understanding that some companies will see the advantages in a recession while others fail to digest this will be the villain in their own story. Also Long-term contracts need to be reevaluated.
Taking a look at a company’s total cash and ability to fiance capital spending is key in creating opportunities for a company. Acquisitions need to be taken with precautions. Money can be lost rather than obtained and the motivation to make deals can increase prices overall.
Take advantage of competitors’ weaknesses. Layoff of competitors’ sales and employees is more important than layoff of production employees. Staying away from price wars can save money and loss of goods.
Having expenditures available can help with the purchases of materials and the re-hiring of employees who lost their jobs. Having a strong relationship with the bank can increase the likelihood of obtaining a loan if your sales are projecting orders and not stuck on past orders.
Although an increase in sales and an increase in consumer goods are positive signs, understanding how to navigate through a boom is key. Getting a grip on business finances help pave the way for what is affordable. Take a look at past contingency plans in case a downfall occurs in the upcoming future.
Understanding the steps that need to be taken to survive a recession will help managers know how to take advantage of recessions in the future.
Explain each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
Total amount of money owed to a firm for goods or operations that is not yet paid by customers
perfect competition Having a large number of sellers can allow you to have flexibility in what you do in your business. You have a certain percentage of the market, but not too much. The product is homogeneous, easy to produce the product and if you want to leave this industry, you could.
monopolistic competition one producer for the whole market. It is a unique product, entry by other firms is difficult due to high costs and legal rights. Control to change the price is very high.
oligopoly small amount of producers. Each one has a good amount of the market and can change the price which affects the other producers.
monopoly Competitive, lots of producers. The products are not the same, but have similar features. Having a product that has a significant difference compare to other products can give them a small amount of market power.
Marginal revue and marginal cost For perfect competition, revenue is a straight line, increasing price of each unit. Having input levels low and output levels high are important factors in creating profit. The marginal revenue increase and profits are earned, You want a level that has the highest amount of profit. Marginal revenue equaling marginal cost is the profit maximizing rule.
Describe the characteristics of the following events briefly.
“Closed down fifty-three business banking offices, laying off 850 workers. The action was well reported in the press, and competing banks immediately started calling on WaMu’s business customers.” This helps other businesses take opportunities that are now open in the marketplace.
Staff was decreasing and customer service fell. A new discount carriers bucked the trend and increased market share. It is smart to connect with prospects looking for remedies for unsatisfied needs. This company used the low prices of operating expenses and used other company’s downfall as their own opportunity.