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How a Malaysian Company may Prepare for a Recession?

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How a Malaysian Company may Prepare for a Recession?

2020-11-26T10:25:29+08:00July 30, 2020|0 Comments

A recession is a period of temporary economic decline lasting more than a few months during which trade and industrial activity are reduced. Businesses cease to expand. Recession is identified by a fall in Gross Domestic Product (GDP) in two successive quarters. 

Overview of Recession

Recession creates fear of losing jobs or businesses and anxiety about the future, which in turn causes the consumer to down-size their expenditure and businesses to scale back on investment. These moves slow down the economy.

Malaysia’s recession follows slow economic growth since the global crisis in 2009. The current COVID-19 situation is bringing uncertainties to the trading center. We have seen a standstill in commerce with borders closed to foreigners, who are a major contributor to tourism and aviation. This foreseen recession is the worst in the history of Malaysia. It is causing the country a daily economic loss of RM2.4 billion. 

During times of economic difficulty, many governments authorize generous budgets to aid its citizens. Malaysia is the same. Many grants, rebates, and loans are being made available. Your business needs to know of the government assistance that you can seek.

It was proposed that from the year of assessment 2020, SMEs will be taxed at 17% on the first RM600,000 of chargeable income (instead of on the first RM 500,000). The remaining chargeable income will be taxed at 24%. However, with effect from the year of assessment 2020, only companies with a paid-up capital (or capital contribution, for LLPs) of up to RM 2.5 million and annual sales not exceeding RM 50 million will be eligible for this tax treatment.

Areas affected by Recession 

  1. Real income
  2. Employment
  3. Industrial production
  4. Wholesale-retail sales

What firms are forced to do?

  1. Lay-off employees
  2. Limit losses
  3. Scale back on production as consumption reduces. A company may choose or be forced to stop the production of low-margin products and reduce employee compensation.
  4. Reallocate resources
  5. Limit exposure to systematic risk

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Preparing for a Recession

Many senior executives in Malaysia have not begun to prepare for a downturn. No significant plans are being put in place. Preparing for a recession gives a company the advantage of thriving above unprepared competitors who may fall to positions that they cannot recover from.

Below are some ways a company can prepare for a crisis:

Diversify your company’s revenue stream 

Look for new ways to diversify your revenue. For example, a business in Malaysia can expand into Singapore and target a new market altogether. This diversifies your income stream and allows you to have a more stable source of income.

Debt management

Manage your debt. Debt increases quickly when there are tight budgets, thus you shouldn’t accumulate debt as a company. Pay it off as quickly as you can. Do not neglect your higher-interest loans. They should be top on your debt list to be cleared. Also, work on efficient ways of collecting debts owed to your company.

Balance sheet discipline

Track your finances well daily, not just in preparation for recession but as a daily routine. This helps to ensure you are aware of your actual cashflow, and how you can plan around it.

Business planning can be difficult, especially if you have no experience in handling a recession. Fortunately, Paul Hype Page is a trusted advisor in the region, with years of experience, and we can advise your business, specific to your needs.

Renegotiate contracts

Find a way of renegotiating with suppliers or landlords for a longer repayment plan. A company can do this by asking for a long-time rental agreement that is lower. Landlords would rather have you stay at a lower rent for longer than have the premises vacant for months. Cut down on subscriptions like magazines and newspapers. Try to have discounts on all your utilities like water electricity and the internet.

Inventory management

Reduce your inventory to a bare minimum and keep only that which you need to meet demand. Do away with inventory that is tying up cash on your shelf. That cash has a possibility of not being liquidated during a recession.

Invest in your customer relationship

Create the best results and experience for your current customers or clients instead of investing so much to attract new clients. The happy clients in turn will bring more clients by sharing their experiences with other potential customers. 

Proactive mergers and acquisition (M&A)

A company should take the opportunity to use M&A to reshape its business portfolio. It may choose to form mergers with strong companies, and at the same time acquire new lines at lower prices.  

It should at the same time do away with companies that are economically viable to be part of in the present and more especially in the future. 

Dealing with Recession

Create a conducive environment for investors. Investors at a company level would only be comfortable if they see proof of strong managerial skills and clear policies. And for a company to flourish it must have political and social stability. So, the government has a role to play in the thriving or fall of a company. The government also depends on the cooperation of all arms of the government for it to be successful economically. 

Innovation and economy are key growth catalysts for Malaysia. After the recession, a Malaysian company needs to multiply and accelerate efforts to ensure that it can compete tenaciously in the competitive landscape.

To emerge successfully from a recession, a company will need to look inwards itself, to understand ways it can improve its efficiency in production processes by adopting new effective ways of achieving more. If your business needs assistance with navigating the difficult period, Paul Hype Page can advise you on the most suitable manner to direct your company.

How a Malaysian Company may prepare for a recession FAQs

Is it wise to start a business in a recession?2020-11-25T16:03:54+08:00

You can still start a small business during recession. Many small businesses thrive in a recession when they tackle the right market with the right products. If you have no clue what business to start during the economic downturn, you are welcome to consult with a Paul Hype Page’s consultant. 

Is cash a king in a recession?2020-11-25T16:03:31+08:00

Yes. Stocks tend to fluctuate a lot in a recession. Thus, having a steady cash flow is the best bet. 

Should I spend on marketing during a Recession?2020-07-30T14:35:40+08:00

Yes, when your competitors are cutting down on marketing efforts, the cost will go down. This lets you will be able to get a better return on your spending.

What causes a Recession?2020-07-30T14:34:37+08:00

Financial factors, the over extension of credit & debt, expansion of the supply of money & credit by Federal Reserve & the banking sector, and unforeseen crisis like wars and pandemics.

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