Write one key takeaway per chapter. Write at least 100 words for each chapter summary.
Knowing what the future holds is the most important thing you can know as a business owner. All business decisions should be made based on the direction the economy is going in. it is crucial to know when to buy depending on the state of the economy. If inflation spikes and prices are really high, then it would be smart to wait to make big purchases until the market levels out again. The same can be said for large business decisions such as expansion. During a recession or during an economic downturn can be the best time to expand as prices are at their lowest point. Knowing the economy is the best thing you can know as a business owner.
Business owners need to know when and how long recessions and economic downturns will last so they can make the best financial and business decisions to benefit the company. Expenses, prices, and profits all vary tremendously while the economy fluctuates. Having information on past recessions and finding patterns can help you prepare and predict when a recession is coming. This is crucial for business owners to know when to buy and how they should change their pricing accordingly. Recessions typically last around a year, so it is important to be prepared for one when it comes. One of the biggest indicators is consumer spending. When consumer spending starts to drop, there likely will be a downturn in the economy.
There are many reasons why the economy can fall into a recession and some may not be as predictable as others. A great example of this was talked about in the book, war. Wars can be very unpredictable and can arise quickly. The most common reasons for a recession are monetary policy, GDP, and inflation. The Federal Reserve controls how much money is in the economy. They also have the ability to raise and lower interest rates, to increase or decrease spending to keep the economy afloat. When the Federal Reserve raises interest rates, it is to combat an excess of money in the economy. When interest rates increase to rise there is likely a recession that follows.
Profit squeezes are very common when it comes to a recession. Profit squeezes take place when a company sees a decrease in profit margin, typically due to a recession. When a profit squeeze occurs, the company likely will raise their prices or lay off employees. This both increases prices for consumers and increases unemployment rates. With prices increasing, it’s only a matter of time before the price of raw materials rises as well. This puts us right back in the same situation we were in before. Price squeezes are leading indicators when it comes to inflation. Once inflation raises too much, a recession is right around the corner.
Managers need to stay ahead of the game and monitor the economy for future downturns. Two things every company should think about when it comes to a recession are vulnerability and flexibility. Creating a contingency plan is crucial for all businesses. Any plan that can help you make it through a recession is very important. Making sure your company can be flexibly during a recession is also very important. Being able to cut expenses and raise cash are the two most important things for businesses when a recession comes.
A responsible manager will keep track of where the economy is going and how the industry is effected by it. Watching the economy allows managers to make great financial decision for the company. Nothing is worse for a business than taking out a loan and expanding your company just to immediately fall into a recession. So, it is very important to keep up with economic events not only in the industry, but the entire world. There are many different levels of this, you can do something as simple as reading news articles about current events, or you could go as far as hiring an economist to do the job for you. Either route you take will give you an edge on the competition.
This chapter starts off talking about the steps of how to manage through the business cycle. Those steps are, 1. Assess the company’s vulnerability to a recession. 2. Sketch out a contingency plan for dealing with a recession. 3. Build flexibility into the company’s day-to-day operations. 4. Develop an early warning system for identifying coming downturns. These four steps are very important and should be implemented by every company in one way or another. You can never be too prepared for a recession so the best time to prepare is now.
Foreign cycles are both similar and different than that of the United States. For one, the currencies are different in foreign countries, so a product may sell for more in America than it does in Mexico, as the conversion may not be equal. Your company also can be effected by conflicts between foreign countries. These conflicts can directly effect countries that you may be doing business in, but it can also effect trade routes. If trade routes are effected then there will surely be supply chain disruptions that would effect your company. That is why it is so important to pay attention to what is going on not only in your own country, but also what’s going on in the world.
Selling to a certain market varies from state to state, as the economy of every state is different. You could thrive by operating in the real estate industry in one state, but in another state it could not be nearly as profitable, or needed to keep their economy afloat. Knowing what industry thrives in which local economy can help you maximize your profits and grow your company. Managers should keep track of how the local economy is compared to the national economy. The same steps apply from Chapter 7 when it comes to preparing for an economic downturn in the local economy.
Chapter 10 talks about how capital intensive industries are different from other industries in the economy. These industries can fluctuate at any time depending on the national economy. Capital intensive industries oftentimes fall into cycles of over investment and unprofitable operations. They are worsened by longer lead times for additions and lower depreciation rates. Capital intensive industries should always include leading indicators or new companies that are being added into the industry. Once competitors announce expansion plans, capital intensive companies should become cash oriented and focus on the future, while the wait for the over expansion of the industry to die down.