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A business cycle is a series of economic ups and downs that occur during a company’s existence. There are four common expressions of the business cycle: economic recovery, economic peak, economic decline, and economic recovery. Savvy entrepreneurs recognize that every cycle is temporary and careful planning can help weather tough days.
Every business goes through an economic cycle in the course of its business and continued existence. In essence, a business cycle is simply a means of describing the series of economic ups and downs that have been part of the experience of any company that has been in business for several years. This series of business cycles can occur in any number of different sequences, resulting in a need for society to respond appropriately if society is going to continue to function.
Sometimes referred to as a company’s business cycle, the business cycle is indicative of a specific type of business activity or conditions affecting the company’s operations at any given time. Broadly speaking, there are four recognized types or variations of a business cycle that occur during the life of a business. The four common expressions of the business cycle are economic recovery, economic peak, economic decline, and economic recovery.
Of all the forms of the business cycle, economic recovery is the most desirable. During this period, sales for the company’s goods and services are strong, with additional revenue recorded from period to period. The company’s economic growth is consistent and allows the company to expand employee benefits, acquire additional resources, and possibly open new locations. Life is very good during an economic recovery, but a responsible business knows the trend won’t continue forever. Forward-thinking companies use the economic recovery business cycle as a time to build up resources to maintain operations once the period of growth starts to wear off.
Most businesses also experience a business cycle known as an economic peak. During this cycle, the company is still profitable, but there is little or no growth. While the company does not have to call upon stored resources to operate, it is often understood that changes must be made to respond to changing consumer tastes or other economic changes.
A third common business cycle is economic decline. This cycle can occur as a result of losing customers to competitors, a recession that limits consumers’ disposable income, or marketing or expansion schemes that do not prove to be profitable for the business. During this period, the company may choose to draw on archived assets to continue operations at their current level. In severe cases, the company may reduce its workforce and even close some facilities to keep it profitable.
The fourth common business cycle is economic recovery. During this period in the life of the firm, the firm begins to overcome adverse circumstances that may have threatened the ongoing function of the firm. Profits begin to climb, laid-off employees are called back to work, and the company prepares to enter a new phase of regaining the prestige it once enjoyed.
Every business will experience each economic cycle multiple times during its years of operation. Savvy entrepreneurs recognize that every cycle is a temporary state, and that careful planning and careful use of resources can enable a business to weather tough days so that periods of prosperity can be achieved again.
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