When there is a recession, companies react in different ways. Some ignore it for as long as possible, hoping that it is a temporary phase that will go away soon. Firms that adopt a "business as usual" approach are the worst sufferers in case the economic downturn continues for any length of time.
Well-managed business enterprises, on the other hand, take a proactive approach when they see the first signs of an economic downturn. Many of these firms adopt a strategy to cut costs and generate cash. Their plan to do this could include:

Slashing operational costs

When market conditions are good, companies do not focus on cost reduction. But in the face of declining sales and the resultant idle capacity, businesses are forced to examine each expense in detail.

Outsourcing of various activities can give immense financial benefits. In addition to the obvious cost advantages, firms get the flexibility to add or reduce outsourced capacity based on their needs.

Adopting this measure also allows firms to concentrate on their core areas of operation instead of allocating management time to activities which are not central to their business.


Getting rid of employees to bring down expenses is not a decision to be taken lightly. In addition to the pain caused to workers who are asked to leave, the company must consider several other factors.

If well-trained and experienced personnel are removed from the payroll, how will production be ramped up when the economy improves? But keeping a large number of workers idle while paying them may not be a feasible option.

To tackle this issue, many firms adopt an innovative manpower strategy that involves hiring as well as layoffs. High-cost employees with skills that are easily replaceable are removed from the payroll. Skilled workers with firm-specific knowledge are retained and the free time at their disposal is used to train them to enhance their expertise in their specialized areas.

Companies that have the foresight also use the recession to recruit highly skilled workers who are available at a relatively low cost. This step gives them a tremendous advantage when the economy improves.

Sell non-core assets

To survive an economic downturn, an essential requirement is an adequate supply of cash. Contracting sales and declining profitability will make accessing loans difficult or at the least, very expensive.

Companies will need to identify and sell all those assets which are not required for production or other essential activities. It is critical to collect a cash hoard, which is as large as possible. Having a greater amount of cash at its disposal will give the business the strength to survive an extended recession.

Develop a game plan

There is no single strategy that will serve to help a business enterprise survive an economic downturn. Each firm will have to arrive at its own set of measures to allow it to pull through.

For some firms, drastic cost reduction steps may be enough. Others may need to use more innovative strategies that could include adopting newer technologies and processes.

The firms that bury their heads in the sand and take no steps to combat the recession are the most likely not to survive.