How to profit in a recession

Written by stephen byron cooper Google
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How to profit in a recession
No one profits if the market is over-supplied. (John Foxx/Stockbyte/Getty Images)

The reason recessions happen is because all the supply of goods in the country exceeds all the demand for those goods. You will not profit until that position is corrected. Some business sectors flourish during recessions, but that is because their sector is not over supplied. When an industry is in downturn all the suppliers have to cut their prices until eventually enough of them go bankrupt to remove the oversupply from the market, then all the remaining players can raise their process and turn a profit.

Skill level:
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Instructions

  1. 1

    Keep a close eye on your rivals. Once the market is saturated, others will start offering sales on credit. Don’t follow their lead. The theory is that the same level of sales can be maintained by making the product accessible to consumers who could not afford it. If they can’t afford it in a boom, they won’t be able to pay for it when the recession hits. Look out for inflation falling and the Bank of England cutting interest rates. Cancel all plans for refurbishment of premises or relocation to bigger offices. Reduce R&D expenditure and withdraw from any new markets that have not yet started to make you a profit.

  2. 2

    Cut costs. Switch suppliers for a better price and also demand longer payment terms. If you have longer to pay for your supplies the switch over will give you a one off credit boost and it is during the first month of your strategy that you will need more help. Suppliers may not be prepared to cooperate at first, but they will in time, so keep checking every month. Ban over time and introduce two shifts. This will reduce your wages bill without having to sack anyone. You are aiming to make a profit, not reduce your output. Mothball your older, less efficient machinery. With shifts, you will be using the newer equipment twice as long, thus reducing its cost per unit.

  3. 3

    Establish your cost price before your cost cutting drive and note the new cost per unit after. Discount your prices down to your old cost price. If you don’t want to damage your quality brand by being cheap, maintain all prices, but have one day or one period a day when everything is cheaper. In boom times you would use incentives, like “Happy Hour” or “Curry Wednesday” to attract customers to your slackest trading times. As the recession starts you need to give these offers on the best hours on the best days.

  4. 4

    Target your rivals. You closest rival will have the same cost structures as yours. If you cut your costs deep enough, and avoided lavish spending at the end of the boom, you are in a stronger position than your rival. Target their trade. For example, if a pub down the road puts on live music on Sundays, offer a pound a pint all day every Sunday. Your rival will not be able to cover his costs and will soon go out of business.

  5. 5

    Steal market share with the deepest cuts you can afford. It may only take a month for one of your rivals to go bust. Keep on with the discounts until it seems enough rivals have gone out of business to enable you to raise your prices and sail out the remainder of the recession making a profit.

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