Every business goes through business cycles in correspondence with the way economy expands or contracts. There are four or sometimes five phases of business cycle depending on how economy is doing. The business cycle is very much asymmetrical, that is, stages of the cycle are not equal in time duration. Whatever the duration is, a business has to go through each phases of business cycle with foresight. In doing so, it must think long-term and act short-term.
Business Cycles
The five phases of business cycles are:
1) Growth: Also known as Expansion
2) Boom: Alternatively known as Peak
3) Decline: Otherwise known as Depression or Recession
4) Bust: Synonyms are: Slump, Trough
5) Recovery: This phase is unique in that it either follows Decline or Bust phase
Characteristics of each phase and how business must respond to it is explained in details below:
1. Growth
Economy picks-up, so does business sentiments in the market. Consumer expenditure moves upward; corporate purchases jacked up in response. Business generally acts on the spur of the moment in enlarging the scope of operations and expanding business horizons. Some business can lurch out of control and swells its employees and grow helter skelter. Well managed ones get its act together and chalk out a recipe of success. Some tips:
Ø Plan out investment in technology and communication as you need this in the coming phase of boom
Ø Expand your market keeping an eye on how globalization, per se, will affect you. You have to be competitive in the local setting and if possible seek pastures abroad for your products
Ø Keep the cost down, finance pruned and your profit margin at reasonable level
Ø Develop your cosmics to work at the faster phase; cosmics are aspects residing in every person and as an extension in every business. Cosmics can arise in different ways. You have to understand cosmics and turn it to your advantages
2. Boom
Economy expands briskly and sometimes over-heated still triggers intermittent stimulus for business to beef up operations. So business blips up sales and purchases; hire more labour and commission new plants and machinery. Finance borrowing is at peak, so is the cash outlay on resources employed in both human and technical. You have twinkle in your eye as if Zeus has descended from Mount Olympus. Anyway you must have a sense of caution thus:
Ø You have to distinguish grain from the chaff; evaluate whether upscale is a seasonal one or cyclical one. Seasonal sales arise from holiday season and during summer; cyclical expansion in sales is a concomitant to economic cycle
Ø Ratchet things up a notch in new technology that you have acquired in the previous phase along with concerns for environmental issues; never neglect your responsibility in building up sustainable environment because as you come to the end of tether in boom cycle you badly need to keep progress at even keel
Ø Diversify your product line-up and markets. If you have concentrated on a single product change into multi track; you have to see new market opportunities. At the same time enhance product quality still more
Ø Get you cosmics to keep you in perfect balance without racking up wasteful expenditure
3. Decline
While economy shows signs of gradual bottoming up, overall progress in industry is stymied. Your business is unable to post big profits. You pitch your hope for a slow decline if your business is declining in relation to the economy. If you are getting into prolonged depression then you need to fear whether you can pull it over or you will be out of business soon. You must still be positive and take a safe assumption that the next stage is going to be recovery rather than slump. Tips are:
Ø Reduce overheads promptly; start negotiations with lenders on term loans and improve efficiency in purchases, inventory maintenance, sales and delivery
Ø Coach your employees on managing change so that they are well equipped in terms of attitude and skills in tackling an uncertain future
Ø Create some kind of buffer in money resources and get a life boat ready for any eventuality
Ø Cosmics can help in shaping your response to the incoming recovery, or in the worst case a bust
4. Bust
Economy totters and goes into slump. Many businesses shutter their doors. Everything appears gloomy. Should you follow suit and get lost? Far from it. Your business life must go on. You have to duke out the trough. My advice is you court success rather than embrace failure. Do the following;
Ø Becalm yourself and get going in business albeit in small scale
Ø Instead of retrenching employees ask them to work for lesser salary
Ø Check out for a major overseas buyer and come into terms with him for bulk sales; persuade your trade and finance creditors to give more time and canvass for emergency assistance from state; continue your good work in marketing
Ø Re-examine your cosmics to see how you can weather the storm
5. Recovery
Economy slowly emerges out of trouble. Business sentiments on rise, though, not to the level you saw during growth phase. Still there is light. Consumers are returning; sales are looking up. Advice:
Ø Put your business in first gear; get the budget process to check income and expenditure; prepare cash –flow on weekly basis
Ø Motivate your employees to meet up with the challenges in the business environment
Ø Fire in all cylinders and operate a fast track marketing campaign
Ø Follow what your cosmics say: You are a re-born business person
Cheers,
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