A recession is characterized by depressed demand. Customers are not willing to buy, and investors are not willing to invest. Lending institutions are reluctant to lend.
Businesses that do not have cash on their balance sheet cannot meet their day-to-day operational expenses on staff, rentals, utilities, etc. Customer payments are also delayed. With receivables not coming, existing debt in the balance sheet begins to bloat as the company cannot service its debt obligations.
Overall financial stress leads to the failure of companies.
Who survives is the logical question? Companies with cash on hand have space to ride the depression in demand for goods and services. They restructure, operations are scaled down, workforce burden is lightened, and an attempt is made to establish an equilibrium between demand and revenues. The faster a company can achieve this state, enables the business to stay healthy.
Recessions are opportunities for well-managed companies to restructure their balance sheet, strategy, and operational efficiency gets a focus. Changes made during a recession prepare the corporation to be ready for the next level of growth that is inevitable once the recession comes to an end and development comes back.