COVID-19 has adversely affected the economy in the past 2–2.5 years. Recession in 2023 will perhaps be India’s worst recession after independence. The Russia-Ukraine war made the worldwide economic situation even worse. After COVID-19, the world is dealing with two main difficult situations: one is with their economies, and the other is with their health sector.
According to a recent report by Bloomberg, the chance of an Asian recession is up to 20%–25%. The recession in Sri Lanka is at 85 %. The United States will face a 40% chance of recession by next year. Few other nations, like Australia and New Zealand, also have the probability of facing a 20% and 35% recession, respectively.
Before moving further, let’s have a quick go-through of what exactly a recession is.
What Exactly Is a Recession?
Technically, a “recession” is a period marked by the contraction of all business economic activities. It is a period in which individuals face lower wages and unemployment, while businesses face decreased output and lower retail sales.
Recession is also known as “the king of bad times.”
As per the National Bureau of Economic Research (NSER), in the history of US recessions, the 2020 recession was the shortest. This recession, which took place after the COVID-19 pandemic struck, lasted only two months. According to NSER, from 1945 until 2009, the average recession lasted for at least 11 months.
Although the 2020 recession was the shortest one, according to 82% of CEOs in India, long-lasting growth is yet to bounce back. The consequences of high unemployment and low income will have a great and lasting impact on businesses and the economic situations of individuals.
What happens during the Economic Recession?
The most important sign of a recession is high unemployment and layoffs. During a recession, people experience a significant impact on their daily lives.
- Prices go higher for all the daily essentials.
- job insecurity
- High-interest rates
- Supply chain issues
- Income drop
Effects of the recession in 2023 on Small Businesses
During any economic failure or economic decline, small businesses are the first ones to be affected.
89% of small business owners say that economic trends such as inflation, supply chain issues, and workforce challenges are having the most dreadful impact on their business.
45% of small business owners find difficulty hiring and retaining qualified employees, while 32% of small business owners find inflation has the most negative impact on their business.
13–17% of them mark the supply chain issue as having the most negative impact on their business.
According to a Goldman Sachs survey, 93% of small business owners are worried about the US economy experiencing a recession in the next year.
The most common issues that affect small businesses during the recession in 2023 are:
- Cash flow-
The reduction in cash flow during a recession is the first and most important reason why businesses collapse. During the recession, the customers delay purchases and payments, which delays the chain of payment between the vendors.
- Layoffs and hiring freeze
As the cash flow decreases abruptly, workers and employees are laid off to minimize the cash crunch. The laying off of employees leads to overburdening the remaining employees, unproductive work, fatigue among employees, and demoralization.
- Fall in sales
When customers experience a cash crunch, they limit their expenses and spend only on essential items. This has an impact on the sales and revenues of small business owners.
Are the Economic Recession in 2023 and the Economic Depression the same thing?
As mentioned, a recession is a worldwide economic decline for a few months, but if we talk about the depression, it is also an economic decline, but it stays for a long period and is much rarer than recessions.
A recession and depression both cause in-
- High unemployment
- Falling home sales and prices
- The decline in the stock market
- decrease in wages
- Negative GDP
- High-interest rates
Let’s look at some data to see what the difference is between the two:
The greatest and longest global recession lasted from December 2007 to June 2009. It occurred during World War II. The peak unemployment rate during this recession was 10%, and the peak GDP decline was -4.30%.
While the longest depression occurred between 1929 and 1939 because of the major fall in stock prices in the United States, during the Great Depression, GDP fell by 30% and employment fell by more than 20%.
Check out the statistics and facts related to the recession.
How to Face or Survive an Economic Recession in 2023 as a Small Business Owner?
The biggest and most effective technique is to maintain the cash flow. Difficulties in cash flow result in the closure of many small businesses.
In this case, having an accountant, bookkeeper, or outsourced accounting firm can help you with this cash flow crunch. Accountants or accounting service providers can help small businesses with:
- Eliminate unnecessary expenditures.
An accountant or an accounting outsourcing service can help you with your unnecessary expenses. They can provide you with an exact picture of your expenses and also suggest the necessary payments be made to the vendors.
- Reduces the tax burden
Accounting firms are best at providing the best solutions and methods to reduce taxes. They are good enough to recommend good government programs and maintain the books to reflect the rules of the particular, which also reduces the tax expenses and any future financial issues.
- Use advanced technology and software to save time.
During a recession in 2023, business owners not only face economic decline or a cash crunch but also mental pressure. This situation can sometimes lead to poor decisions and discouragement. This has an impact on business statistics. Thus, with the help of an accountant or accounting service provider, business owners can save a lot of time as they use a lot of high-end technology that can manage and automate a few tasks.
Recession and depression are the worst phases that a business faces. Business owners need to understand that there are several options and techniques to save their business. Accountants and bookkeepers are much more reliable in these situations. You can even opt for an accounting service provider. They have the most advanced technology and software for the management of your account.