The understanding of economics is vital regardless if you are a startup company or if you have a company. The economy has a great impact on the performance of a company, when the economy is going well the company is more likely to do well, whereas, if the economy is in a recession then the company is more likely to struggle. The understanding of economics can help the companies to take precaution to avoid distress when the economy is at its lowest point.
When the economy is peaking
When the economy is at peak it is best to have precautionary savings for the company or make use of the economic peak to diversify the companies market and business. The diversification of the market can help the company to sustain during an economic recession within a country. If the company is doing well in Country A then it is most advisable to expand the market to Country B so that when the economy of Country A is in a recession the income from Country B will support the losses. The diversification of business can help the company to sustain when one business is doing bad the other business might do well during economics downfall. When the economy is at its peak most the people have jobs, therefore, they have disposable income to spend on the things they desire. Whereas during the recession the unemployment rate is high, therefore, most of the people do not have enough income to spend. Therefore, it is best to take advantage of the economic peak rather than ignoring that the economy will not remain at peak.
When the economy at recession
When the economy at the recession, there are not much can be done but to survive the recession, during economic recession multinational companies can survive the recession but during a global recession then even the multinational companies have less chance of surviving. If the recession is within a specific country then it is best to increase the export to other countries. In a recession, the government usually reduce the tax to boost the economy, therefore, it is best to take the opportunity to export. The local market does not have enough disposable income for spending, therefore spending is low during the recession. The economic downfall usually encourages the employees to work hard to keep their job, this can also be taken into an advantage by increasing the quality and efficiency of the production. An increased quality of product and services are in high demand in international level.
The companies that are at peak should take advantage of the extra cash for sustainability of the company by taking the projects are that have positive NPV. Some of the companies with extra cash take bad projects with an ambition in expanding the company.