10 Business Mistakes To Avoid During A Recession

avoid business mistakes during recession

Countries at any point may experience a recession because of issues such as pandemic or deflation. The recession is the decline in financial gain for several months, and the result is a harmful economic domestic product. People lose jobs because companies cannot trade as usual. After all, consumers do not make purchases often. Therefore the article will enlighten businesses on mistakes they should avoid, especially now that economies are in recession due to the Coronavirus pandemic.

1. Prioritizing Clearing Debts

Recession throws people and businesses into a panic mode, which contributes to irrational decisions. Therefore, people rush to clear debts they owe without considering the aftermath. Companies also disregard hiring an insolvency attorney to advise them on dealing with the debt during the crisis. Thus the business uses the income accumulated to clear debts instead of investing the same towards getting more returns after the economy improves. The business should not comply with aggressive payment plans that will deplete the resources of the company faster. Instead, the company should negotiate with the creditors to get fair payment plans.

2. Making Hasty Decisions

Most businesses do not have a policy on dealing with a crisis and, therefore, decide based on the situation rather than evidence. These businesses will hurry in deciding to send staff home before evaluating the possibility of keeping them because recession does not go on forever. The decision to lay off staff allows the business to suffer more because they cannot continue producing products. Therefore they will lose customers. In the case of an economy improving, it will be hard to come back to business. The business should not disregard the effort made by the employees in its growth and success.

3. Focusing Too Much On Past Recessions

While the past gives excellent insights into dealing with the current crisis, it is not always the answer. When a business focuses on how it performed during the past recession period, it is likely to make bad decisions. The past brings in emotion rather than reason. Thus the business will make decisions based on emotion, which can hurt the stakeholders. More so, the present recession does conform in all respects to the past recession. It is because of this reason that companies should not rely a hundred percent on previous experiences. The business should use past experiences as a lesson and not a reason to panic.

4. Disrespecting The Employees

Employees are machinery through which the business operates. Therefore the management of the company should not stop treating the employees well when the downturn clicks in. Most managers often make managers disregard the feelings of the employees during economic turmoil. Besides, the leaders forget how the employees helped in making the business profitable. Therefore the managers also fail to consult the employees before making decisions that affect their salaries, allowances, and leave days. Even the leaders fail to appreciate talented employees who jump off the ship and seek employment elsewhere.

5. Keeping Quiet

Some businesses fail to communicate important information to consumers, suppliers, and employees. Therefore keeping quiet creates room for suspicion and unfounded conclusions. For instance, a company can fail to communicate to the creditors that it will be late to pay the debt during the month. They are keeping quiet stains the relationship between the debtor and the creditor. The creditor, therefore, adopts a more stringent means of collecting the debt. Not relaying crucial information to the suppliers, such as reducing orders, creates a misunderstanding during delivery, which can cost the business a supplier.

6. Reducing Standards

When the economy faces turmoil, businesses often decide to cut down on resources that guarantee the quality of products and services. For instance, the business can cut on resources used to offer services to clients. The clients lose the benefits they used to enjoy before the recession. The company does not remember that it is a competitive world where businesses target to gain more market share despite the challenges. So the clients move on to businesses offering them quality services. Firing support staff who help transport products purchased to the client’s car is an excellent example of how the business compromises customer benefits. Other companies eliminate customer service assistance positions, which lead to loss of personal touch, which is crucial in customer satisfaction. Eliminating employees’ opportunities to undertake training to improve their skills can also reduce services offered.

7. Controlling Human Resources

Businesses try to conserve resources during economic hardships, which can negatively impact employees. The management can become stringent and, therefore, not allowing the employees to breathe space. Therefore the employees will lack the opportunity to make decisions within their job description. Moreover, the employees will become demotivated and, therefore, not give their best to the businesses. Besides, the leaders also minimize the instances they consult with the employees before making a decision, which is a challenge. Therefore, the employees do not feel part of the organization during the difficult times, which plunges the business deeper into chaos.

8. Shying From Making Investments

Most businesses do not get involved in investments during the crisis. However, this should not be the case for a company that has a bigger picture. For instance, businesses do not purchase new technology that would revolutionize their business despite having a budget. They instead wait for the crisis to clear so that they can make the investments. Most companies that withstand recession are smart investors who take a risk that guarantees them future success. Moreover, the business that does not take the recession as an essential opportunity to diversify has difficulty managing. Therefore the management should know where they want to be after the turmoil and achieve the same.

9. Converting Investment To Cash

Investment is crucial to a business’s life because it brings in revenue that helps the business cover expenses. However, during economic turmoil, businesses rush and convert investments to cash without having a plan for the cash. The company spends the money in an unplanned manner that puts the business at risk of running down. The business disregards the chance of converting the investment into a more secure portfolio. It is also likely that the company will lose a considerable amount because of the conversion. Selling an asset during a crisis takes place at the lowest market price.

10. Stopping Contribution To Pension Funds

Failure to remit contributions to pension funds during recession leaves the business personnel exposed in their old age. A business that opts for this solution does so because of panic. More so, some businesses also opt to take out the amount invested in the fund without factoring in how to reinvest the money. This decision is reckless and can cause the management to expose many families to poverty after employees retire. When dealing with the pension funds, the company also fails to adopt a tentative period within which it should reinvest the money. Therefore, the business assumes that it will do so after the economy recovers, which is not advisable.


A recession occurs when a company experiences a decline in the gross domestic product, and there is deflation. The choices businesses make during the recession are crucial in determining the resilience of the business. There are common mistakes made by the business, such as disregarding the employees’ efforts towards making the business a success. Also, to cut down costs, businesses interfere with the quality of services and products offered. Some companies convert investments to cash to increase cash reserves, which is a reckless decision. Besides, some businesses remain quiet when they ought to communicate and reassure them that everything will be well.

Mark Jorel Snow

Mark Jorel Snow brings over 15 years of financial experience to help everyday people master their money. Mark is passionate about making complex financial topics simple. His down-to-earth explanations empower readers to take control of their finances with confidence. Mark specializes in creating tailored money strategies and providing unmatched personal support. When he's not coaching clients or penning his latest article, you can find Mark enjoying nature and time with family.

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