Business Plans For Dummies®, 2nd Edition

Chapter 15. Planning in Turbulent Economic Times

In This Chapter

• Recognising the warning signs

• Figuring a way through the storm

• Planning for the recovery

Economies have been going through cycles of growth and contraction for as long as economists have been around to study business activity. For the most part, advanced economies such as the US and Europe grow on a steady upward trend of around 3 per cent a year, but sometimes growth stalls or even contracts and when that happens it has a knock on effect on demand throughout the economy. The more severe the contraction the worse the effect.

If demand drops for a couple of quarters by a percentage point or two it signals a recession and large numbers of businesses will close. The bigger and longer the decline the more you need to adapt your business plan to fit the economic climate. Depressions occur when the economic contraction is extremely severe and GDP declines by over 10 per cent. Depressions are almost invariably international, concerning many countries, and involve the collapse of financial markets in general and the banking system in particular. They are usually triggered by mistakes in economic policy.

Cycles and the Multiplier Effect

Expenditure multiplies through the economy. This means it has a far greater ripple effect than the initial sum involved, making spending activity more important than the sums themselves may sound. Suppose the government, the country's largest single customer, decides to embark on a major programme ...