Some predict a recession, while others claim it has already begun. While a recession is a terrible phrase for any firm, it’s especially concerning for small enterprises, which may lack the financial cushioning of larger corporations. That’s why it’s critical to start planning now to recession-proof your company. As the economy worsens, it will be considerably more difficult for you to respond quickly and keep your firm afloat. Don’t be concerned. Here are five steps your small business may take to respond correctly during a downturn in the economy:
Focus on core competencies.
Your company excels at one thing in particular. It’s most likely your company’s main product or service, and it’s what will keep it afloat during a downturn. Reduce the number of goods and services you support to the ones that you know perform best, and don’t waste money on those that don’t. Find ways to produce numerous streams of money through promoting your core product or service, if at all possible. You can also boost your earnings by offering VIP and economy versions of a service you already provide. Consider a subscription option that includes additional perks and is automatically renewed.
Don’t stop marketing.
During a recession, it’s more crucial than ever to do everything you can to keep on customers’ minds. Regardless of your financial situation, set aside funds for marketing (including the cost of establishing a good internet presence) and do your best to keep in front of your clients. To get you started, here are a few suggestions:
- Send content-rich emails to your present customers on a regular basis.
- Make a convincing offer to past customers you haven’t heard from in a long time to get them back.
- Consider conducting social competitions, sales, or events, and post regularly on social media.
Be aware of the times in which you choose to engage with your audience. Maintain relevance in your messaging while keeping your company’s brand identity front and center. Also, avoid making a hard sell. Observe the crowd – during a recession, everyone is strapped for cash.
Protect your cash flow.
Recessions result in narrower profit margins, making it difficult to maintain a stable cash flow. So, for a moment, let’s get painfully genuine. If your cash flow stops, your company will most likely shut down. So, in order to survive a recession, you must plan ahead for measures to protect your cash flow. Here are a few possibilities:
- Reduce any unneeded expenditures. Examine your present expenditures. Is there anything in your business that you can go without for a period, such as services, subscriptions, or resources? If that’s the case, then do without and put that money toward business expenses.
- If possible, renegotiate vendor agreements to include more favorable terms. Keep in mind that your vendors may be struggling as well. They’d probably prefer to renegotiate the terms of your contract rather than lose your business altogether. While the economy is shaky, see if they’re ready to offer you a lower price or more flexible payment terms.
- Make arrangements for financial help. Examine the possibility of obtaining a small company line of credit. To keep your firm afloat, apply for small business grants and small business loans. Small business loans like Kabbage might make the difference between survival and bankruptcy. Check out this list of the finest small business loans, and learn more about the Small Business Administration’s funding options.
Finally, make certain you are aware of your cash flow condition. You won’t know how to protect yourself unless you have a clear handle of the figures.
Invest in your existing customers.
Getting new clients is more expensive than keeping old ones. Even in the best of circumstances, this is true. People cut back on their spending during a recession, making it even more difficult to persuade a new customer to try your business. As a result, investing in your existing consumers becomes even more critical. Now is the moment to establish genuine connections with your customers. Demonstrate that you are on their side. Treat them with deference and demonstrate that you appreciate their patronage with your actions.
Delegate and automate.
It’s time to start delegating if you’re planning for a recession. Determine which duties may be delegated to other employees and whether there are cost-effective automated solutions that can execute repetitive jobs faster than you or your team. Delegate the jobs that take the greatest time and provide the least financial return first. Try to get rid of any tasks that aren’t in your wheelhouse or that don’t bring in a lot of money. Your time is one of the most significant resources in your company as a leader. Make sure you save it for the projects that will have the most influence on the company’s bottom line.
It’s difficult to run a small business during a recession. A recession, on the other hand, does not have to be the end of the world. To adapt to the new reality, your small business will need to be agile and flexible. You can recession-proof your firm and emerge stronger on the other side if you plan ahead, execute properly, and stay focused.
What businesses thrive during a downturn?
What makes the list of recession-proof business ideas may surprise you. These are, nevertheless, items and services that are in high demand even amid a downturn. In a terrible economy, here are 12 good businesses to start:
Baby products
Baby items are one of the recession-proof sectors. After all, just because you have a kid when the recession hits doesn’t mean you won’t need diapers and bottles.
Many parents will cut back on their personal spending before cutting back on their children’s purchases. Children’s items are usually recession-resistant, even if they aren’t completely recession-proof.
During a difficult year, parents may not be able to spend hundreds of dollars on goods for their children at Christmas, but they will still buy gifts. Babies grow quickly and require new clothing on a regular basis. And, come September, youngsters will always want a new pair of shoes to wear to school.
Consider creating a business that caters to children, particularly babies, if you want to start a firm that can weather a recession.
Food and beverage
The food and beverage businesses are also recession-proof. People still need to eat, even amid a downturn. People will splurge on certain small things even if they cut out on splurges like eating out at restaurants. During a recession, food store sales, confectionery sales, and alcohol sales all tend to rise.
Why do these recession-proof firms continue to prosper even when times are tough? Because they are regarded as “affordable pleasures” during difficult times! As a result, people will continue to treat themselves to these products before making a larger purchase.
Did you know, for example, that Snickers and Mars Bars were created during the Great Depression? This demonstrates how much sugar we crave when our stress levels raise.
People prefer to dine at home, thus grocery stores are a wonderful industry to be in. That implies they’ll devote more time to preparing meals at home. And, of course, people will always require toothpaste, laundry soap, and other essentials, regardless of the economy.
Retail consignment
One of the first things people cut back on when times are tough is new clothing. However, this does not mean that people are willing to give up their passion for shopping.
During the last recession, sales at secondhand stores increased by 31% while sales at other merchants decreased. Indeed, the thrift store frenzy persisted long after the recession had passed. Furthermore, buying worn garments is just as popular as buying new ones.
People frequently try to save money by buying used electronics, jewelry, musical instruments, and other items. In a difficult economy, retail franchises and other second-hand shops, such as pawn shops, are good enterprises to establish.
Courier and delivery services
Mail will always be required. As a result, courier and delivery services are among the most recession-resistant industries. Courier and delivery services are less susceptible to recession than other industries.
Even if sales are down, there is still a need to dispatch packages. And, as more people resort to the internet to buy and sell used items, the need for delivery is only going to grow.
Some companies may even choose to outsource their courier services. So, whether it’s pouring, sunny, or in the midst of a recession, delivery services are always in demand.
Childcare / daycare
Remember how I claimed that baby things are recession-proof earlier? This is also true in the case of daycare. When resources are tight, it can be difficult for parents to pay for things like childcare, but it’s one of the last things they cut out. This is especially true if both parents work or if the family lives in a single-family home.
Even if a parent loses their job or has to reduce their working hours, they will maintain their children in childcare. There are numerous advantages for younger children to remain in a safe and secure setting, particularly when there is a lot of change that they may not comprehend. As a result, childcare services are one of the recession-proof businesses.
Health and senior services
According to the Bureau of Labor Statistics, healthcare and other services for seniors are predicted to expand by 23% by 2024. This is a service area that has been quickly increasing during the previous decade.
As more members of the Baby Boomer generation reach retirement age, demand is expected to increase. Seniors will continue to require assistance with fundamental requirements as they age, and this is unlikely to change in the event of a recession.
Even if they don’t live in a nursing facility, elders may need to hire a caregiver to help them around the house or run errands. So, basically, any sector that works with elders can be excellent recession-proof business opportunities!
Technology and IT
Quarantines and social isolation, on the other hand, have demonstrated that technology will be even more in demand in the next years. Telecommuting and working from home are only going to grow in popularity, especially now that so many companies are understanding the benefits of doing so and saving money on overhead expenditures like rent.
As firms everywhere look to improve their telecoms, the popularity of working from home is anticipated to increase demand for enterprises that cater to IT. Even doctors are urging patients to call instead of traveling to the hospital, citing the benefits of technology.
Technology-enabled at-home services and businesses are also becoming recession-proof.
Repair services
Things break down even in the best of circumstances. Something will always need to be repaired, no matter what! During a recession, consumers may opt to repair rather than acquire new items, or at the very least postpone purchases as much as possible. Repair services are one of the best businesses to start in a difficult economy because of this.
Repair services for essential products, such as auto mechanics, roofers, and plumbers, are likely to see just as much work during a recession as they do when circumstances are good. When opposed to organizations that are more specialized, automotive services that offer a wide range of services do particularly well during a recession.
Cleaning services
No, I don’t mean that home cleaning services will become more expensive during a downturn. Other regions where cleaning services are legally needed likely to be recession-proof. A cleaner is required in any job, including banks, office spaces, classrooms, hotels, and lobbies.
Typically, these services are contracted out to a cleaning agency. Even if a company has to reduce its workforce, it will require a cleaning. Corporate cleaning companies are regarded as recession-proof businesses since they generate a consistent stream of revenue even when the economy is in decline.
Accounting services
Accounting services are another industry that will continue to be in demand even when times are difficult. In fact, during a recession, their services may be even more in demand as organizations look for methods to cut costs.
Businesses will need to pay their bills and maintain track of payments and earnings even during a recession. The individual who knows the numbers is unlikely to be fired. If you’re skilled with numbers, accounting or starting a similar firm could be one of the finest recession-proof businesses to start.
Freelance services
When a recession strikes, businesses turn to freelancers as a cost-effective alternative to recruiting full-time workers. As a result, freelancing is one of the most recession-resistant professions to consider.
The best part is that you can diversify your services to generate numerous revenue sources. You could, for example, work as a virtual assistant and freelance writer. This manner, you’re not reliant on a single source of revenue for your entire income! Check out our guide on how to get started freelancing if you have no prior experience.
Pet care business
In 2020, the national pet industry’s sales surpassed $100 billion for the first time in history! As a result, pet care and supplies have been proven to be recession-proof enterprises. Another encouraging and heartwarming statistic is that 54% of pet owners would rather spend less on themselves so they could spend more on their dogs!
Despite the economic downturn, veterinary appointments, grooming sessions, and vital pet goods thrived. So, if you’re looking for recession-proof company ideas, think about these areas!
In a downturn, what sells?
- While some industries are more vulnerable to economic fluctuations, others tend to do well during downturns.
- However, no organization or industry is immune to a recession or economic downturn.
- During the COVID-19 epidemic, the consumer goods and alcoholic beverage sectors functioned admirably.
- During recessions and other calamities, such as a pandemic, consumer basics such as toothpaste, soap, and shampoo have consistent demand.
- Because their fundamental products are cheaper, discount businesses do exceptionally well during recessions.
Which industry is immune to the downturn?
A recession-proof business can be extremely profitable for people in both good and bad times. Whatever the state of the economy or the stock market, certain company concepts, such as those listed below, have a good possibility of succeeding despite the rest of the financial doom and gloom.
Many well-known or historically successful enterprises were founded during economic downturns. The Walt Disney Company was created in the late 1920s, at the commencement of the Great Depression, and the Hewlett and Packard electronics company was founded in the late 1930s, during the second recession.
Rising interest rates and shifting GDP pose far less of a threat to the finest recession-proof enterprises mentioned below than they do to most other businesses, with many of them having the ability to do even more business than usual.
Food and Beverage Business
Because everyone still needs food and drinks to live, the food and beverage business is one of the most recession-proof industries. Because it is not a luxury that can be put aside in difficult times, enterprises in this area can thrive even in a downturn.
Is cash a good investment in a downturn?
- You have a sizable emergency fund. Always try to save enough money to cover three to six months’ worth of living expenditures, with the latter end of that range being preferable. If you happen to be there and have any spare cash, feel free to invest it. If not, make sure to set aside money for an emergency fund first.
- You intend to leave your portfolio alone for at least seven years. It’s not for the faint of heart to invest during a downturn. You might think you’re getting a good deal when you buy, only to see your portfolio value drop a few days later. Taking a long-term strategy to investing is the greatest way to avoid losses and come out ahead during a recession. Allow at least seven years for your money to grow.
- You’re not going to monitor your portfolio on a regular basis. When the economy is terrible and the stock market is volatile, you may feel compelled to check your brokerage account every day to see how your portfolio is doing. But you can’t do that if you’re planning to invest during a recession. The more you monitor your investments, the more likely you are to become concerned. When you’re panicked, you’re more likely to make hasty decisions, such as dumping underperforming investments, which forces you to lock in losses.
Investing during a recession can be a terrific idea but only if you’re in a solid enough financial situation and have the correct attitude and approach. You should never put your short-term financial security at risk for the sake of long-term prosperity. It’s important to remember that if you’re in a financial bind, there’s no guilt in passing up opportunities. Instead, concentrate on paying your bills and maintaining your physical and mental well-being. You can always increase your investments later in life, if your career is more stable, your earnings are consistent, and your mind is at ease in general.
What should I put away in case of economic collapse?
Having a strong quantity of food storage is one of the best strategies to protect your household from economic volatility. In Venezuela, prices doubled every 19 days on average. It doesn’t take long for a loaf of bread to become unattainable at that pace of inflation. According to a BBC News report,
“Venezuelans are starving. Eight out of ten people polled in the country’s annual living conditions survey (Encovi 2017) stated they were eating less because they didn’t have enough food at home. Six out of ten people claimed they went to bed hungry because they couldn’t afford to eat.”
Shelf Stable Everyday Foods
When you are unable to purchase at the grocery store as you regularly do, having a supply of short-term shelf stable goods that you use every day will help reduce the impact. This is referred to as short-term food storage because, while these items are shelf-stable, they will not last as long as long-term staples. To successfully protect against hunger, you must have both.
Canned foods, boxed mixtures, prepared entrees, cold cereal, ketchup, and other similar things are suitable for short-term food preservation. Depending on the food, packaging, and storage circumstances, these foods will last anywhere from 1 to 7 years. Here’s where you can learn more about putting together a short-term supply of everyday meals.
Food takes up a lot of room, and finding a place to store it all while yet allowing for proper organization and rotation can be difficult. Check out some of our friends’ suggestions here.
Investing in food storage is a fantastic idea. Consider the case of hyperinflation in Venezuela, where goods prices have doubled every 19 days on average. That means that a case of six #10 cans of rolled oats purchased today for $24 would cost $12,582,912 in a year…amazing, huh? Above all, you’d have that case of rolled oats on hand to feed your family when food is scarce or costs are exorbitant.
Basic Non-Food Staples
Stock up on toilet paper, feminine hygiene products, shampoo, soaps, contact solution, and other items that you use on a daily basis. What kinds of non-food goods do you buy on a regular basis? This article on personal sanitation may provide you with some ideas for products to include on your shopping list.
Medication and First Aid Supplies
Do you have a chronic medical condition that requires you to take prescription medication? You might want to discuss your options with your doctor to see if you can come up with a plan to keep a little extra cash on hand. Most insurance policies will renew after 25 days. Use the 5-day buffer to your advantage and refill as soon as you’re eligible to build up a backup supply. Your doctor may also be ready to provide you with samples to aid in the development of your supply.
What over-the-counter drugs do you take on a regular basis? Make a back-up supply of over-the-counter pain pills, allergy drugs, cold and flu cures, or whatever other medications you think your family might need. It’s also a good idea to keep a supply of vitamin supplements on hand.
Prepare to treat minor injuries without the assistance of medical personnel. Maintain a well-stocked first-aid kit with all of the necessary equipment.
Make a point of prioritizing your health. Venezuelans are suffering significantly as a result of a lack of medical treatment. Exercise on a regular basis and eat a healthy diet. Get enough rest, fresh air, and sunlight. Keep up with your medical and dental appointments, as well as the other activities that promote health and resilience.
In a downturn, who benefits?
Question from the audience: Identify and explain economic variables that may be positively affected by the economic slowdown.
A recession is a time in which the economy grows at a negative rate. It’s a time of rising unemployment, lower salaries, and increased government debt. It usually results in financial costs.
- Companies that provide low-cost entertainment. Bookmakers and publicans are thought to do well during a recession because individuals want to ‘drink their sorrows away’ with little bets and becoming intoxicated. (However, research suggest that life expectancy increases during recessions, contradicting this old wives tale.) Demand for online-streaming and online entertainment is projected to increase during the 2020 Coronavirus recession.
- Companies that are suffering with bankruptcies and income loss. Pawnbrokers and companies that sell pay day loans, for example people in need of money turn to loan sharks.
- Companies that sell substandard goods. (items whose demand increases as income decreases) e.g. value goods, second-hand retailers, etc. Some businesses, such as supermarkets, will be unaffected by the recession. People will reduce their spending on luxuries, but not on food.
- Longer-term efficiency gains Some economists suggest that a recession can help the economy become more productive in the long run. A recession is a shock, and inefficient businesses may go out of business, but it also allows for the emergence of new businesses. It’s what Joseph Schumpeter dubbed “creative destruction” the idea that when some enterprises fail, new inventive businesses can emerge and develop.
- It’s worth noting that in a downturn, solid, efficient businesses can be put out of business due to cash difficulties and a temporary decline in revenue. It is not true that all businesses that close down are inefficient. Furthermore, the loss of enterprises entails the loss of experience and knowledge.
- Falling asset values can make purchasing a home more affordable. For first-time purchasers, this is a good option. It has the potential to aid in the reduction of wealth disparities.
- It is possible that one’s life expectancy will increase. According to studies from the Great Depression, life expectancy increased in areas where unemployment increased. This may seem counterintuitive, but the idea is that unemployed people will spend less money on alcohol and drugs, resulting in improved health. They may do fewer car trips and hence have a lower risk of being involved in fatal car accidents. NPR
The rate of inflation tends to reduce during a recession. Because unemployment rises, wage inflation is moderated. Firms also respond to decreased demand by lowering prices.
Those on fixed incomes or who have cash savings may profit from the decrease in inflation. It may also aid in the reduction of long-term inflationary pressures. For example, the 1980/81 recession helped to bring inflation down from 1970s highs.
After the Lawson boom and double-digit inflation, the 1991 Recession struck.
Efficiency increase?
It has been suggested that a recession encourages businesses to become more efficient or go out of business. A recession might hasten the ‘creative destruction’ process. Where inefficient businesses fail, efficient businesses thrive.
Covid Recession 2020
The Covid-19 epidemic was to blame for the terrible recession of 2020. Some industries were particularly heavily damaged by the recession (leisure, travel, tourism, bingo halls). However, several businesses benefited greatly from the Covid-recession. We shifted to online delivery when consumers stopped going to the high street and shopping malls. Online behemoths like Amazon saw a big boost in sales. For example, Amazon’s market capitalisation increased by $570 billion in the first seven months of 2020, owing to strong sales growth (Forbes).
Profitability hasn’t kept pace with Amazon’s surge in sales. Because necessities like toilet paper have a low profit margin, profit growth has been restrained. Amazon has taken the uncommon step of reducing demand at times. They also experienced additional costs as a result of Covid, such as paying for overtime and dealing with Covid outbreaks in their warehouses. However, due to increased demand for online streaming, Amazon saw fast development in its cloud computing networks. These are the more profitable areas of the business.
Apple, Google, and Facebook all had significant revenue and profit growth during an era when companies with a strong online presence benefited.
The current recession is unique in that there are more huge winners and losers than ever before. It all depends on how the virus’s dynamics effect the firm as well as aggregate demand.
What do individuals buy the most during a downturn?
When it comes to some types of items, it doesn’t matter how the economy is going. Even in hard times, people will require “essential” items; selling these items at a reasonable price will not necessarily increase your profits, but it will help ensure regular customer traffic and the possibility that people will be enticed to buy more expensive items, allowing you to potentially cross-sell more profitable items.
Pre-packaged food goods, such as chips and cookies, provide shelf-stable solutions to assist ensure your stock doesn’t go bad as you raise consumer awareness of your expanded offers during an economic crisis.
Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care products are constantly in demand, and offering these items may position your company as a valuable resource for customers during difficult times.
Even when things are tight, people want to look nice; they may not be able to purchase a new dress or pair of shoes, but it’s usually possible to test a new nail color or have a makeover, and businesses that provide these types of products and services usually survive recessions.
Pets are viewed as members of the family, and people will continue to spend money on them, including supplies, medical services, and grooming, even when circumstances are tight.
People still wear clothes throughout recessions, and clothing, underwear, socks, and shoes wear out, so if your firm sells necessary clothing, you’ll be fine.
Even during recessions, people continue to have children, and parents will continue to spend money on items like clothing, diapers, formula, pediatric treatment, and child care services.
Who profited from the financial crisis of 2008?
Warren Buffett declared in an op-ed piece in the New York Times in October 2008 that he was buying American stocks during the equity downturn brought on by the credit crisis. “Be scared when others are greedy, and greedy when others are fearful,” he says, explaining why he buys when there is blood on the streets.
During the credit crisis, Mr. Buffett was particularly adept. His purchases included $5 billion in perpetual preferred shares in Goldman Sachs (NYSE:GS), which earned him a 10% interest rate and contained warrants to buy more Goldman shares. Goldman also had the option of repurchasing the securities at a 10% premium, which it recently revealed. He did the same with General Electric (NYSE:GE), purchasing $3 billion in perpetual preferred stock with a 10% interest rate and a three-year redemption option at a 10% premium. He also bought billions of dollars in convertible preferred stock in Swiss Re and Dow Chemical (NYSE:DOW), which all needed financing to get through the credit crisis. As a result, he has amassed billions of dollars while guiding these and other American businesses through a challenging moment. (Learn how he moved from selling soft drinks to acquiring businesses and amassing billions of dollars.) Warren Buffett: The Road to Riches is a good place to start.)