5 Things You Shouldn’t Do During a Recession

In a sluggish economy or an outright recession, it is best to watch your spending and not take undue risks that could put your financial goals in jeopardy. What happens to the economy during a recession can negatively impact your personal finances and wealth. However, by being prepared and taking a few simple steps to reduce your risks, you can improve your chances of weathering the financial decline. Below are some of the financial risks everyone should avoid taking during a recession. 

Key Takeaways

  • When the economy is in a recession, financial risks increase, including the risk of default, business failure, and bankruptcy.
  • Avoid increasing, and if possible reduce, your exposure to these financial risks.
  • For example, you’ll want to avoid becoming a cosigner on a loan, taking out an adjustable-rate mortgage, and taking on new debt—all of which can increase your financial risk during a recession.
  • If you’re an employee, you’ll want to do everything you can to safeguard your job, such as performing top-notch work and improving your productivity.
  • If you’re a business owner, you might need to postpone spending on capital improvements and taking on new debt until the recovery has begun.

Becoming a Cosigner

Cosigning a loan can be a very risky thing to do even in flush economic times. If the individual taking the loan does not make the scheduled payments, the cosigner could be responsible to make them instead. During an economic downturn, the risks associated with cosigning a note are even greater, since the person taking out the loan has a higher chance of losing their job—not to mention the cosigner’s own elevated risk of ending up unemployed.

Cosigning potentially leaves you on the hook for the life of a loan. Consider other ways to help the borrower if you can.

That said, you may find it necessary to cosign for a family member or close friend regardless of what is happening in the economy. In such cases, it pays to have some money set aside as a cushion. Or, instead of cosigning, it may even be preferable to assist with a down payment or other types of assistance rather than leaving yourself on the hook for a cosigned loan on an ongoing basis. 

Taking out an Adjustable-Rate Mortgage

When purchasing a home, you may choose to take out an adjustable-rate mortgage (ARM). In some cases, this move makes sense (as long as interest rates are low, the monthly payment will stay low as well). Interest rates usually fall early in a recession, then later rise as the economy recovers. This means that the adjustable rate for a loan taken out during a recession is nearly certain to rise. 

While interest rates usually fall early in a recession, credit requirements are often strict, making it challenging for some borrowers to qualify for the best interest rates and loans.

But consider the worst-case scenario: You lose your job and interest rates rise as the recession starts to abate. Your monthly payments could go up, making it extremely difficult to keep up with the payments. Late payments and non-payment can, in turn, have an adverse impact on your credit rating, making it more difficult to obtain a loan in the future.

Instead, assuming you have decent credit, a recession may be a good time to lock in a lower fixed rate on a mortgage refinance, if you qualify. However, be cautious about taking on new debt until you see signs the economy is recovering.

Taking on New Debt

Taking on new debt—such as a car loan, home loan, or student debt—need not be a problem in good times when you can make enough money to cover monthly payments and still save for retirement. But when the economy takes a turn for the worse, risks increase, including the risk that you will be laid off. If that happens, you may have to take a job—or jobs—that pay less than your previous salary, which could eat into your ability to pay your debt.

In short, if you are considering adding debt to your financial equation, understand that this could complicate your financial situation if you are laid off or have your income cut for some reason. Taking on new debt in a recessionary environment is risky and should be approached with caution. In the worst-case scenario, it could even contribute to bankruptcy. Pay cash if you can, or wait on big new purchases.

Taking Your Job for Granted

During an economic slowdown, it is important to understand that even large corporations can come under financial pressure, leading them to reduce expenses any way they can. That could mean scaling back on operating expenses, cutting dividends, or shedding jobs.

Because jobs become so vulnerable during a recession, employees should do all they can to make sure their employer has a favorable opinion of them. Coming to work early, staying late, and doing top-notch work at all times is no guarantee that your job will be safe, but doing those things does increase your chances of staying on the payroll. From an employer’s perspective, it makes more sense to cut marginal workers rather than reduce hours or wages for their more productive employees. Make sure that you are not a marginal worker.

Taking Risks With Investments

This tip applies to business owners. While you should always be thinking about the future and investing in growing your business, an economic slowdown may not be the best time to make risky bets. Early on in a recession is not the time to stick your neck out. Later, as soon as the economy starts to show signs of sustainable recovery, is the time to start thinking big when prices for capital purchases and labor costs for new hiring are low. 

Especially avoid investment projects that would require you to take on new debt to finance.

For example, taking on a new loan to add physical floor space or to increase inventory may sound appealing—particularly since interest rates are likely to be low during a recession. But if business slows down—another side effect of recessions—you may not have enough leftover at the end of the month to pay interest and principal on time. Wait until interest rates just start to tick upward and leading economic indicators for your market or industry turn up

The Bottom Line

There’s no need to live a monk’s existence during an economic slowdown, but you should pay extra attention to spending and be wary of taking any unnecessary risks. Even in the midst of a significant economic downturn, there are many positive steps you can take to improve your situation and recession-proof your life. These include implementing a realistic budget, establishing an emergency fund, and generating additional sources of income.

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Bad Credit Getting a Home Equity Loan With Bad Credit Mortgage Adjustable-Rate Mortgage: What Happens When Interest Rates Go Up Home Equity 5 Ways a Home-Equity Line of Credit (HELOC) Can Hurt You Real Estate Investing The Risk of Subprime Mortgages by a New Name Purchasing A Home Financing Basics For First-Time Homebuyers Mortgage How To Find the Best Mortgage Rates

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Understanding Recessions

Effect on the Economy

Effect on Businesses

Investing During a Recession

History of Recessions

Recession Terms A-F

Recession Terms G-Z

The Shapes of Recession Recovery

5 Ways To Help Your Favorite Restaurant Survive The Coronavirus Crisis

All across the restaurant world, owners are rushing to reassure patrons that they’re taking steps to combat the coronavirus.

Your inbox is probably filling up with emails from individual restaurants and restaurant chains, pledging to be vigilant.

“We know it’s starting to feel a little uncertain out there,” Chicago restaurant owner Rick Bayless said in an email to his customers on Thursday.

“Just know that we’re in here, continuing to deliver generous-spirited hospitality to everyone who walks through our doors.”

But fears are growing that a drop in business will harm or even kill restaurants whose margins are already thin.

Some restaurants are already announcing temporary closings. The crisis has been especially difficult in Seattle, where the virus struck early. Other places are cutting back on hours and staff.

There are things you can do, however, to make sure that your favorite place stays open. Here’s a list.

                       

1) Go out and eat. The restaurant industry has been galvanized into taking steps to make their dining rooms, restrooms and kitchens the cleanest that they’ve ever been.

We know that the coronavirus spreads in two ways: from surface contact, and from airborne transmission.

At least when it comes to surface contact, you can be pretty sure that your place is wiping down as much as it can.

Likewise, smaller crowds mean less chance that you’ll catch an infection that way, even though there are no guarantees.

Of course, some states are banning assemblies of larger groups, which might affect whether your favorite is open.

But, if you are comfortable leaving the house, and they are welcoming customers, go have a good meal.

2) Honor reservations. The worst thing you can do right now is book a table and then change your mind and not show up. It’s always a bad idea but in this environment, it will really play havoc with their staff and inventory planning.

Likewise, it’s truly bad form to make multiple reservations, and then choose from one at the last minute. You’ll simply make a number of places unhappy.

“Don’t ‘ghost,’” Bayless said in his email to customers. “We kindly ask that if you choose not to join us for your reservation, please inform us in advance. It’s OK!”

3) Opt for carryout or delivery. On its Instagram account Friday, Saba in New Orleans launched a curbside delivery service.

Many other restaurants have offered them, or have pick up areas where you can dash in, get your food and leave.

It’s a better deal for restaurants if you collect carry out yourself, rather than use a delivery app. That helps the restaurant — and you — avoid delivery charges.

But if you don’t feel like driving over, delivery is your back up choice. Be sure to tip your delivery person.

4) Buy gift cards and merchandise. Restaurants collect gift card revenue as soon as the card is purchased, then mark it as redeemed once the user applies it to a bill.

If you are in a position to buy a gift card and sit on it for a while, you will be helping your local favorite get through a tough time.

Likewise, merchandise can be big profits for restaurants. They make money on t-shirts, cookbooks, mugs, water bottles, and the like. They’re walking advertisements, too, and they show that you’re lending your favorite place a hand.

5) Tip your server. I’ve seen people asking on social media whether they can send tips directly to their favorite servers, to offset the money they’re losing by the drop in patronage.

That’s a lovely idea, but the situation can be a little complicated. First, you have to know your server well enough to have their email or cellphone number.

Second, servers are supposed to declare tips as income, and pay the appropriate taxes.

If you send the money through an app like Venmo or PayPal, there will be a record of the transaction, and the server might get in trouble if they don’t later report it, and the IRS catches them.

That’s why some servers prefer to be tipped in cash.

Also, you need to look up your state’s tipped wage law, if it has one. A number of states require restaurants to cover the shortfall between tips and the minimum hourly wage, usually for employees that are working 30 hours or more per week.

If their hours get cut, they could lose out, even if you try to make up the difference.

Before you do this, make sure it’s on the up-and-up. And also, be considerate of your server’s pride if you make them an gratuity offer.

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I’m an alumni of the New York Times and NPR. I learned to cook from my mom, and studied with Patricia Wells and at Le Cordon Bleu. E: mamayn@aol.com T: @mickimaynard I: @michelinemaynard Sorry, I don’t honor embargoes.

Source: 5 Ways To Help Your Favorite Restaurant Survive The Coronavirus Crisis

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Shocking opportunities of the Coronavirus and Global Recession for restaurant owners and entrepreneurs… *DISCLAIMER* I’m not a medical professional or economist so for most accurate advice please refer to the CDC and WHO This video is filmed March 2 2020. Around the world, the Coronavirus has made Chinese restaurants ghost towns and affected millions of small businesses. With all this fear and panic happening, it has been reported that some Chinese restaurants are seeing as high as 70% sales drop. Some are forced to lay off workers and close down. Although Chinese restaurants are feeling the brunt of this, know that a virus knows NO BORDERS and sees NO SKIN COLOUR. The business ramifications will leak onto other restaurants as people continue to be fearful of going out to eat and gather. But as one person sees all the NEGATIVES of this, there is another who sees THE POSITIVES OF THIS. As a business owner, I see the opportunities in all the fear and panic from this pandemic and global recession. Cause as Warren Buffet says, when everyone is fearful, you should be greedy. It is the prime time to use the fear as your advantage as things are cheaper and in favour of the growing trend to food delivery. Life is all about how to react to problems. It is up to you how you react to this global phenomenon. Just know that riches are made in recessions. So if you are a restaurant owner, restaurateur, food entrepreneur, small business owner, want to open a restaurant, want to start a business, then now is the time. *Note: no way am I belittling the drastic and devastating effect both the coronavirus and recession has done and can do to people’s livelihood and the lives taken. RESOURCES: Secret Restaurant Success Club Facebook Group: http://bit.ly/Restaurantsuccessclub 7 Day FREE Email Training on How To Start a Restaurant: http://bit.ly/restaurantemailtraining How To Start A Restaurant With 0 experience: http://bit.ly/ULTRESTAURANT ABOUT WILSON LEE: I am an award-winning Top 30 Under 30 business strategist, digital marketer, and Brick and Mortar development expert helping business owners and entrepreneurs create explosive Food and Beverage businesses. My experience cultivating and operating multi-million dollar businesses such as founding and growing an international Dessert Chain (https://720sweets.com/) with locations from North America to Asia, I have discovered the key to achieving unattainable success. It is now my mission to share this knowledge with others who have solid business concepts but can’t seem to break through. If you’d like to learn more about how I can help you achieve the same results, then make sure to connect with me: https://wilsonklee.com/ FOLLOW ME ON: Instagram: https://www.instagram.com/wilsonklee/ Facebook: https://www.facebook.com/WilsonKingLee/ #wilsonklee #restaurantowner #restaurantmanagement

3 Ways to Recession-Proof Your Company & Why Right Now Is the Best Time to Do It

David Barrett survived the Great Recession by making his business as boring as possible.In 2007, the founder and CEO of Expensify was trying to launch a prepaid debit card that would enable–and hopefully encourage–charitable giving to panhandlers in San Francisco. But, as forecasts of economic turmoil mounted, investors were interested only in ideas that sounded “sane and reasonable,” he says. So Barrett started pitching the safest related product he could imagine: an automated expense-report management system.

That worked; Barrett secured enough money to quit his full-time job in April 2008. He still intended to pursue the card idea, but soon hit a production snag–and with the economy in free fall, Barrett recalls thinking, “Shit, I really need to make a business out of this right now.” So he doubled down on business-expense management.

Almost 1.4 million small businesses with employees closed from 2008 through 2010, according to the U.S. Small Business Administration. Expensify, now with five offices and a staff of 120, wasn’t one of them–a feat Barrett attributes to those pre-recession pivots. They taught him to “build a product that is needed in a downturn,” he says. “Sell aspirin, not vitamins.”

Recession war stories may seem out of place during this prolonged period of economic growth, but there are signs that a slowdown is on the way. A June 2019 survey from the National Association for Business Economics put the risks of a recession beginning before the end of 2020 at 60 percent. A third of the 2019 Inc. 5000 CEOs expect a recession to begin this or next year, with another third bracing for one in 2021. Whenever the downturn hits, these steps can help your business weather it.

Fundraise.

Build your cash reserves while you can. Serial entrepreneur Mitch Grasso had a potential downturn in the back of his mind while raising capital for his latest venture, Beautiful.ai. The presentation software company raised $11 million in Series B funding in March 2018, just 17 months after a $5.25 million Series A round. “I chose to raise money earlier than I would have otherwise, even though it cost me probably a little more” in terms of valuation, says Grasso. “If there’s money on the table, take it sooner rather than later. You’ll always find a way to spend it.”

Conduct consumer research.

You might not be able to pivot your entire business model, so figure out what products and services your customers will need even in poor conditions, says Carlos Castelán, managing director of the Navio Group, a retail business consulting firm.

Ryan Iwamoto, co-founder of caregiving service 24 Hour Home Care, started asking his customers for their input when the federal government introduced sweeping rules for home health care agencies in 2016. He wanted to be “the first in market to educate them on all the regulations coming down in our industry,” Iwamoto says. “It allowed us to build better relationships”–and has helped boost his company’s revenue by more than 68 percent since the law changed, he reports.

Ink multiyear contracts with clients, not vendors.

Earlier this year, during a regular assessment of her company’s revenue targets, Sandi Lin considered the potential impact of an economic slowdown. The co-founder and CEO of Skilljar was happy to discover half of the customer training platform’s revenue was on multiyear contracts, meaning “at least theoretically, that even if all of our other customers went bankrupt,” Skilljar would have some runway–and less pressure to scramble for new business.

Lin applies the opposite approach for vendor contracts; while Skilljar is sponsoring a major customer conference this fall, she negotiated a minimal commitment on room nights and seats with the hotel and venue. Which is a smart business practice in good times, too; as Lin says, “the most important job of an entrepreneur is to survive.”

By: Jeanine Skowronski

Source: 3 Ways to Recession-Proof Your Company–and Why Right Now Is the Best Time to Do It

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