A manager needs to: Needs to know a series of steps to cut costs, to survive recessions.
Table of possible options in a contingency 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 |
When the warning systems signal a slowing of sales it is time to start fine tuning the contingency plans. You want to monitor inventories closely and reduce or eliminate capital spending plans.
These steps come after the easy steps, and they come with a greater force. During this time capital spending is cut entirely or almost entirely. Business managers need to review employment, capital spending, financing, and be able to keep lenders fully appraised of the conditions.
Depending on the severity of the recession your company could be in survival mode. There is a list of four things that should be considered. 1st is Capital spending not only needs to stop, but asset sales need to be considered. 2nd is Employment must be cut as much as possible. 3rd is Sales personnel will be kept, though perhaps not at previous staffing levels. And lastly, the 4th is the other steps described earlier are doubly important now.
During the recession take time to look at your business strategies, maybe there is something you can takeaway from the recession in a positive way. Surviving the recession is important. Once survival is likely, it is time to exploit the economic slowdown. This will be easier for some companies but not all.
Recessions provide opportunities for a multitude of things. Use this time to build your company for whats to come after the recession has passed. Something like acquiring a weaker competitor is an example.
Prices and sales will weaken during a recession, that is expected. Keeping the sales staff motivated is hard during these times but it is important they do their jobs the best they can. Try to avoid price wars during recessions.
Sales should rebound during the recovery of the recession. Key employees should be recalled during this time if they were let go. Also, at the same time expect employee turnover to increase unless significant steps are taken to retain the lost workers.
Managers should not get carried away during this time. Use the boom to get your finances in order, while also trying to increase credit lines. This is a good time to review contingency plans for the next downturn.
Managing during a recession should start before it even hits. Companies should be alert, and on the watch for the next downturn. Plus, incorporating flexibility into the business is crucial.
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.
Money that is owed to a company by their debtors
It is a short or long term process where the company determines the price, by using the input and output levels that will lead to the highest possible profit
Describe the characteristics of the following events briefly.
Washington Mutual had shutdown 53 banking offices, laid off 850 workers, and all this happened during a time when there wasn’t a recession in place.
Staffing levels were cut and customer service tanked. During the recession there became a low quality customer service. We see it best with complaints from late flights, and missing luggage being accelerated.