A manager needs to: Prepare all departments for an economic downturn while at the same time panning how to make a smart choice of action in order to prevent any closures or legal battles which could ensue.
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 |
It is time to start the contingency plan, and the tuning and corrections to it, re evaluate the capital spending plan, when you find risks then try to find solutions is the only way a company can truly stay afloat in times of loss, or downturn. Staffing is another thing you have to observe because if shrink costs in that area can be eliminated then the company is saving and is able to accomplish the same amount of work. Inventory needs to be monitored, due to spending costs being higher, ask yourself, will those products be sold? Do we have enough to last through and break even? These are questions which need to be asked. We also need to check accounts recievables, how do people owe and how can we get our much needed money from this group of people, we can’t let debts go away especially in times of downturn. Factoring is also a course of action for some companies, it gives the company a way for quick cash, they are empowered sell off whatever they think of as holding relevant value to make sure they have enough to pay debts.
Capital spending is cut to close to nothing or possibly complete zero. Unnecessary assets need to be thrown out and sold off, incase of survival being needed at a later point. Inventory needs to b carefully looked at along with replacement of things, this means that things are not doing to well, or downturn may be up ahead. These are basically the steps of the easy side just ramped up.
Capital spending is stopped, and assets are going to need to be looked into as well, cutting employment is necessary, along with the sales staff needs to be leaned out but still there. Inventory should be kept lean, then the company needs to be getting cash to hold, and delaying payments are also important. If all goes south sell it(the business).
Using advantages based on competitors disadvantages is the best possible way to blossom through a recession, lower operating costs, less materials used and purchasing is made easier due to lack of bills, and more money to spend because of less payout.
Companies with cash thrive through recession, they are equipped to buy out other businesses and grow larger as a result, looking at sectors to figure out the time to purchase more things in times of growth is also important. Depending on how large you want to grow, sometimes buying certain pieces of another business is what you might do, like manufacturing pieces or a marketing team.
Businesses need worry about cost and keeping customers while doing it legally, however not always trying to put competitors out of business, they need to keep things competitive. Attorneys must be involved in order to keep things legally and make smart choices to ensure that the business stays afloat.
This begins with ensuring that the business has the capacity to expand production. Increasing sales can also potentially stress a company particularly their cash position. Companies should expect turnover unless a company focuses on retaining employees.
You should consider using the boom to get your finances in good standing, this includes credit lines. Start reviewing for the next contingency plan, incase of another downturn. Compare the least profitable sales price to the cost of the last points of the companies production.
You should always be thinking ahead and have a plan in order to make flexible choices and be able to make decisions which will ensure the business is solid and is able to make it through the economic downturn and others.
Explan 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.
This is when someone buys a product or service and subsequently owes that business from which it bought the product and will pay them back at a later date. This is in turn when money is owed by the debtors to other businness, or people.
This term has to do with increasing profits to equal marginal revenue and the marginal cost, this means that setting a marginal revenue to zero when the total revenue has reached its peak at the maximum total. Which then will in turn equals the profit maximum.
Describe the characteristics of the following events briefly.
The Washington Mutual lay-offs almost one thousand workers. When the news got out to the press they were shamed by customers along with the press. This was due to the lack of a plan to ensure their workers were taken care of or at least warned.
Discount carriers got lots of business after major flight holders let go of employees and led to more late flights, baggage lost, and customer service down. Operating costs were very low for discount carriers which gave them a boost since they were able to sustain full staff and this then in turn ensured that they ran super smoothly.