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Big corporations can withstand the negative effects of a recession for a longer duration simply because they have a lot of cash saved in their reserves. Further, these corporations often reinvest their profits in their business instead of distributing the same to the owners. In such a scenario, the capacity building ensures that the organization has strong ability to withstand an economic downturn.
There is nothing stopping a small businessman from reinvesting the profits earned into the small business. However, most small and medium enterprises make the mistake of allocating profits for personal expenses even before they are realized. The end result is that the profits are used to settle debts and the entrepreneur starts all over again. This approach works fine as long as the economy is working properly. However, the recession quickly leaves the business without any protection whatsoever.
Big corporations are required by the law to allocate a certain part of their profits towards reserves. Further, long term planning often involves allocation of significant amount of profits for capacity building. One option is to adopt such an approach and be very disciplined as far as distribution of profits are concerned. Another option is to invest the money earned as profits from the business in high return yielding investments. The investment may be in the name of the business or in the name of the individual entrepreneur. Either way, one should ensure that the profits are not spent on frivolous expenses alone. It is important to create an additional revenue stream from the profits that one earns.
