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What is a Business Cycle?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 April 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Every company goes through a business cycle during the course of its operation and continued existence. Essentially, a business cycle is simply a means of describing the series of economic ups and downs that are part of the experience of every business that operates over a number of years. This series of business cycles may occur in any number of different sequences, resulting in the need for the company to respond in an appropriate manner if the company is going to continue to operate.

Sometimes referred to as the economic cycle of a company, the business cycle is indicative of some specific type of economic activity or conditions that are influencing the operations of the company at any given point in time. Generally speaking, there are four recognized types or variations of a business cycle that take place during the life of a company. The four common expressions of the business cycle are the economic upturn, the economic peak, the economic decline, and the economic recovery.

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Of all the forms of the business cycle, the economic upturn is the most desirable. During this period, sales for the goods and services of the company are robust, with additional earnings posted from one period to the next. The economic growth of the company is consistent, and allows the corporation to expand benefits to employees, acquire additional assets, and possibly open new locations. Life is very good during the economic upturn, but a responsible company knows the trend will not continue forever. Corporations with an eye to the future use the business cycle of economic upturn as a time to stockpile resources to maintain operations once the period of growth begins to fade.

Most companies also experience a business cycle that is known as an economic peak. During this cycle, the company is still profitable, but growth is minimal or non-existent. While the company is not having to call upon stored resources in order to operate, there is often an understanding that changes will need to be made in order to respond to changing consumer tastes or other economic changes.

A third common business cycle is the economic decline. This cycle may occur due to the loss of customers to competitors, as a result of a recession that limits the disposable income of consumers, or marketing or expansion schemes that do not prove to be profitable for the company. During this period, the corporation may choose to draw on stored resources to continue operations at their current level. In severe cases, the company may cut the labor force and even close some facilities in order to maintain profitable.

The fourth common business cycle is economic recovery. During this time in the life of the company, the business begins to overcome adverse circumstances that may have threatened the ongoing function of the enterprise. Profits begin to rise, laid off employees are called back to work, and the company prepares to enter a new phase of recapturing some of the prestige that it once enjoyed.

Every company will experience each business cycle a number of times during its years of operation. Experienced business owners recognize that each cycle is a temporary state, and that careful planning and judicious use of resources can allow a business to weather rough days so that periods of prosperity will eventually be achieved once again.

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Discuss this Article

susmita
Post 4

The world is changing rapidly and we have to move fast. It does not matter where are we right now. Every season is changing and just like it, the business cycle is also changing.

Business cycles include the requirement definition, analysis, implementation and maintenance. Businesses have many ups and downs and we have to think and take the decision wisely for reaching at the peak. Business people have to understand business and economic rise and fall like the seasons.

anon86456
Post 2

excellent for students.

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