What is Recession?

Introduction

Recession is defined as a significant decline in activities across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale retail trade.

The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s Gross Domestic Product.

The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy.

The following equation is used to calculate the GDP: GDP = C + I + G + S+(X – M) or GDP = private consumption + gross investment + government investment + government spending + (exports – imports). Nominal value changes due to shifts in quantity and price.

What is an example of gross domestic product?

We know that in an economy, GDP is the monetary value of all final goods and services produced. For example, let’s say Economy A only produces sugarcanes and cocoa pods. Figure %: Goods and Services produced in Economy A.
In year 1 they produce 5 sugarcanes that are worth $1 each and one cocoa pods that are worth $6 each. Nigeria’s GDP growth contracted to -0.36 per cent in the first quarter of this year compared to 2.11 per cent in the fourth quarter of 2015.

Nigeria’s economy has been badly hit with unemployment rate high at 12.1 per cent; exports dipped by 34.6 per cent while imports declined by 7.8 per cent in the first quarter of 2016. The headline inflation index for the month of June 2016 was put at 16.5 per cent which is the highest in 11 years.

Recession is not a new phenomenon as even in the bible days there were recessions. In Gen. 47:15-16, 19, Bible talks about money failing in Egypt. Recession simply means failure of money. There may be so much money in the system but the purchasing power is zero.

The economy always has and always will have its ups and downs. It’s easy to coast through the good times, but how do you come out of the tough times unscathed? By preparing adequately, cutting costs, and making sure you still have some income coming in, you can emerge out of a recession just as strong as you were before it.

Causes

  •  Massive corruption
  • Failure to save in the time of boom
  • Fall in oil prices in the international market
  • Shortage of crude export due to militant activities
  • Low receipts from non-oil sources

Solutions

Solutions to recession involves the three players in the economy:

Government:

  •  Aggressive fight against corruption and forfeiture of all proceeds of corruption
  • Diversification of the economy to non-oil activities
  • Increased production capacity of local producers
  • Friendly business climate eg. , policies, roads, light, basic amenities
  • Consume what we produce

Financial Institutions:

Must make funding available to the citizens at:

    • Affordable interest rates
    • Much longer tenure
    • Less stringent conditions such as collaterals, many guarantors of high caliber, demands for undated cheques 
    •  Provision of funding to start-ups as well.

Citizens:

 Create multiple streams of income.

In a recession, there’s always the chance that some people might lose their jobs. Your primary focuses should be to keep your current job and keep searching. Though discussion today is not about job seeking but on self-employment.

However, you can also increase your financial security by creating multiple income streams. This can be done through:

  • Investment.

There are so many investment vehicles available today. You can invest in extracurricular activities, hobbies and your talent.

For instance, I make money from royalties from sales of my books, both hard copies and soft copes, seminars/ talks, sales of my CDs and advert on my website.

Entrepreneurship.

Entrepreneurship is from a French word “entreprendre” meaning to undertake. To thrive in recession and get financial freedom, you must start, grow and expand business of your interest.

Let discuss more on this:

“The wise man put all his eggs in one basket and watches the basket.” – Andrew Carnegie

Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.– Warren Buffett

So business survival strategy number one is focus on your business. If you do this diligently and strategically, your business will survive any recession and provide you enough cash flow during and after the recession.

Friends, there can never be true freedom without financial freedom. Any form of freedom-political, educational, psychological, emotional and mental- is never complete without economic freedom. Until you are financially free, you are not yet free, whether as a nation or as a people.

There was a survey conducted that showed that about 20% of the world’s population controls about 80% of the earth’s resources. What that means is that we have 80% of the people working for and sharing the wealth created by the 20%.

What’s the difference between the 20% and the 80%? Is it skin colour? Background? Educational qualification? Their place of birth or nationality?

The answer to all these questions is capital NO! The answer is simply the desire to work for themselves, to be their own bosses, to make mistakes and to learn from the mistakes.

Forbes every year chronicles the list of 400 richest people in the world. Everybody in the list is entrepreneur!

Friends, paid employment cannot give you financial freedom. The best it can do is to make you go by, live a moderate and comfort lifestyle but never extra to play with and remember this, paid employment can never to take your name to the Forbes list.

Paid employment makes the family go round in circles. This is what Robert Kiyosaki calls “Rat Race”. The father was there and he introduced the kids to it. Now the kids are grown up and raising their families, to be introduced to the circle as well.

How Do I Start a Business?

Many have confused money as the starting point of business but this is not so. Money is great but it’s not the number factor in starting a business.

The first thing is business ideas. Of course we know that ideas rule the world today. Once you have what products or services you want to offer, the other things will naturally fall into place.

Unfortunately, many people who want to start business don’t have business ideas and so they remain stuck even with millions of naira at their disposal. It is therefore important to undergo business ideas generation classes.

Secondly, decide, if you are already engaged, either to start full time or moonlighting. Each with its own advantages and disadvantages.

Afterwards, document your business ideas in a business plan, which is a strategy document that spells out the visions, missions, objectives of the business and detailed plans to achieve them.

Remember, a good business plan does not guarantee business success but lack of business plan makes success almost impossible.

Factors to Consider

  •  Market
  • Capital
  • Location
  • Availability of raw materials
  • Availability of technology
  • Labour requirement
  • Government policies
  • Competition
  • Strategic fit
  • Profitability
  • Passion

Strategies for Business Success in Recession

  1. Track your finances daily.

Regularly check your records to ascertain daily sales and purchases and compare with your revenues for that day. You need such records as cashbooks, daybooks, receipts, Performa invoice etc.

2. Reduce inventories and overhead at any cost. Look for items that does not move or turn frequently. That’s where your cash is locked up — in your cost of materials, labor, and so on, waiting to be turned into cash after it’s sold and the receivables collected. This can result in a huge cash drain especially at this period of recession.

3. Review your marketing and reduce spending on traditional media. Use the internet and social media to market your products and services.

4. Resist profit-eating sales and discounting. Don’t give away your product; instead, compete with service, quality and uniqueness. Create a niche and have a competitive advantage. The big box stores cannot compete with you, especially on service. It’s the small-business competitive advantage.

5. Manage effectively. This means tracking and analyzing key indicators, financial reports and productivity. Get smaller first and more profitable; then grow slowly and carefully.

6. Focus on quality. That’s what wins in the long run. Never forsake this principle.

7. Reduce expenses.

“Watch the costs and the profits will take care of themselves.” – Andrew Carnegie

There are many ways to cut expenses during a recession. In many cases, you can maintain your same quality of life while focusing on living lean and cutting out extravagant and unnecessary expenses.

  • Cut discretionary spending.
  • Buy nothing if you don’t need it to live.

To survive a recession, you must be careful with respect to business expenditures. If your business spends money on frivolous things such as parties, bonuses, TGF, vacations, incentives and any other thing that has no direct impact on your business growth, then it’s time to cut back on them.

8. Keep saving. If you can, fit saving into your budget, even during a recession. Remember the story of Joseph in Egypt? He saved at surplus to take care of period of scarcity.

“There is one paradoxical characteristic every entrepreneur must possess to succeed. An entrepreneur must be able to persuade his debtors to pay their debts promptly and at the same, must tactically delay payments to his creditors.” – Ajaero Tony Martins

9. Intensify marketing and advertising

“The aim of marketing is to know and understand the customer so well that the products or service fits him and sells itself.” – Peter F. Drucker

One of the silly mistakes made by most managers during a recession or decline in sales is to cut back on the marketing budget. Instead of cutting back on the marketing budget, I advise you intensify marketing drive. Instead of going into hiding, I will advise you do some marketing and let your customers know you will stand by them even in the face of a recession.

“Advertising is the mouth piece of business.” – James R. Adams

10. Your overall strategic plan should focus on your business survival

Most small businesses operate without strategic plans. If your business operates without a strategic plan, then I am sorry your business cannot survive a recession. There is always a big difference between businesses that operate on strategic plans and those that don’t. So the earlier you begin to run your business on strategic plans, the better for you.

“The most important ‘speed’ issue is often not technical but cultural. It’s convincing everyone that the company’s survival depends on everyone moving as fast as possible.” – Bill Gates

One of the companies I admire is Apple Corporation. Apple is known for its creativity and innovative products but I want you to know that constant innovation is a part of their overall strategic plan to stay relevant in the market.

“In three years, every product my company makes will be obsolete. The only question is whether we will make them obsolete or somebody else will.” – Bill Gates

During the recession, our overall strategic plan was focused on one thing “business survival.

“My most important word in business is ‘Strategy’ and the reason is this: The speed at which your business grows is directly proportional to the overall strategy deployed on that business and the team behind the creation of that strategy” – Ajaero Tony Martins

The major reason most small businesses failed during the recession was because they tried to survive by acting alone. Imagine trying to navigate a ship through the storm alone; it’s almost next to impossible. To survive a recession, you need to sail through the storm as a member of a team.

“Individuals don’t win in business; teams do.” – Sam Walton

11. Take care of your existing customers

“There is only one boss; the customer. And he can fire everybody in the company, from the chairman down, simply by spending his money somewhere else.” – Sam Walton

Do you know that your customers are your company’s greatest assets? Without them, your business will not be in existence. From analysis carried out by the marketing experts, it has been reveal that it costs more effort and resources to find new customers than to retain existing ones.

“Business is not just doing deals; business is having great products, doing great engineering and providing tremendous service to customers. Finally, business is a cobweb of human relationship.” – Henry Ross Perot

What if your customers abandon your business during a recession, will your business stay afloat? I leave you to answer the question. If you must know; existing customers are the most important key to surviving a recession. Treat them with care and they will spread the word about the wonderful experience you gave them.

Courteous treatment will make a customer a walking advertisement.” – James Cash Penny

One of your recession survival strategies will be to stay true to your customers. Establish a closer relationship with them; provided excellent services and dealt with customer’s complaint with utmost priority.

“Spend a lot of time talking to customers face to face. You will be amazed at how many companies don’t listen to their customers.” – Henry Ross Perot

You need to do this because the implication of losing one customer is colossal and beside that your competitors are looking for an opportunity to poach your customers so you have to be on guard.

Customer service will become the primary value added function of every business.” – Bill Gates