The inevitable recession caused by the coronavirus pandemic may not seem like the best moment to consider starting your own business. People will lose their jobs, customers will spend less, and many businesses may go out of business. However, as contradictory as it may appear at first, starting a business in a downturn can have its benefits. Here are five reasons why a downturn in the economy can be the ideal time to start your new business.
Because Other People Will Not
The first reason why a recession is a great time to start a business is because others in your industry will be hesitant to do so as well. Most people become more risk apprehensive during a downturn, thus they are more inclined to put their company ambitions on hold. Because your competitors are hesitant to enter the market, you will be able to gain a footing before they do.
Established Business Will be Struggling
When a recession hits, a well-established company will be prepared for increased turnover. A business that was profitable prior to the recession may now be saddled with large fixed costs that it can no longer afford. A new business, on the other hand, can begin optimizing for the sluggish economy right once. You can start with a leaner, more nimble organization and possibly undercut even larger competitors on price.
Greater Availability of Labor
During a recession, people of all skill levels are likely to lose their jobs, which will increase labor availability and lower the cost of employing workers. As a result, businesses that start up during a downturn will be able to hire higher-level staff at lower salaries than they would have been able to during a boom.
People Will Be Looking for Cheaper Alternatives
Consumers and businesses alike will be looking for cheaper alternatives to products and services during a recession. As a result of your lower operational costs, you’ll be able to undercut established suppliers by offering more reasonable goods.
Being a New Business Will be Less of an Obstacle
It might be difficult to compete against more established competitors when you first start a business. Even if the costs and terms are better, customers are usually hesitant to acquire from a company with no track record. People will prioritize saving money over most other factors now that the economy is in free collapse. Your lack of trading experience will not be a barrier to new sales, as it would be in a rising economy, as long as your product holds up to scrutiny.
Cheaper Supplies
During a recession, everything you need for your new firm will be less expensive. Renting a building will be less expensive, raw materials will be less expensive, and ordinary supplies will be more accessible. In some circumstances, you may be able to arrange long-term supply agreements that will save you money both during and after the crisis.
Get Better Terms from Suppliers
During a recession, you’ll find that suppliers are more willing to negotiate terms, in addition to cheaper pricing. You should be able to negotiate lower minimum order amounts and better credit conditions, for example. When it’s difficult to attract clients, suppliers are more eager to bargain and collaborate with you to achieve a win-win solution.
Cheap Goods Will be Available at Auctions
Auctions will be held to sell the assets of companies that have ceased to operate. As a result, during a recession, you will be able to purchase machinery and office furniture at far cheaper prices than usual. During a downturn in the economy, you could even be able to buy a company outright for a low price. While no one enjoys profiting on the misfortune of others, if you do not take advantage of the assets being liquidated by another company, someone else will.
Borrowing Money Will Cost Less
Interest rates are kept high when the economy is growing to keep inflation under control. During a recession, however, governments and banks will lower interest rates to stimulate the economy. It, if you need to raise capital for a new business, now is the most cost-effective time to do so. Even after the economy begins to recover, interest rates are likely to remain low. As a result, you’ll be able to get low-cost financing for numerous years.
It Makes an Excellent Brand Story
Starting a business amid a recession can bring several chances for public relations and marketing. A story of an entrepreneur who defies the trend and brings a product to market amid a downturn in the economy, for example, would be a hit with the media. Depending on the goods you offer, you may also be appreciated for providing a necessary item at a reasonable price during difficult circumstances. When things return to normal, you’ll be able to tell people that your company was formed during a recession and survived a global pandemic. What a fantastic “About Us” page that would be for your company’s website!
Conclusion
As you can see, a recession could bring less competition, reduced startup and operational expenses for new enterprises. So, if you have a product or service that people will still need in a downturn, now might be the best moment to start your new firm.
Is it a terrible idea to establish a business in a downturn?
Your work isn’t done if you’re able to start a business during a recession. You must not only differentiate yourself from competitors and advertise your product, but you must also always strive to improve your products. You’ve made a sale if you’re able to sell something once. When you can continuously provide something that people desire and need, you’ve built a long-term business. By constantly evolving your brand, you can strive to provide value to people’s lives. You don’t need to make drastic adjustments, but you should be constantly analyzing what’s working and what isn’t, as well as anticipating market gaps and developing products to fill them. The finest brands in the world don’t merely release new items for the sake of having something to offer they innovate intelligently, which helps them turn customers into passionate followers.
What businesses thrive during a downturn?
What types of businesses thrive during a downturn? Essential services, such as health care, senior services, grocery stores, and maintenance, such as plumbing and electrical, frequently prosper during a recession.
In a downturn, how do you make money?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).
A recession favours whom?
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 is a recession-proof industry?
Healthcare, food, consumer staples, and basic transportation are examples of generally inelastic industries that can thrive during economic downturns. During a public health emergency, they may also benefit from being classified as critical industries.
How can tiny businesses weather the storm?
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 conditions. 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 purchasing during a recession, making it even more difficult to persuade a new customer to try your firm. 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.
Do things get less expensive during a recession?
Houses, like cars, become less expensive during a recession due to lower demand more people are hesitant to make a significant move, thus prices drop to lure the few purchasers who remain. Still, Jack Choros, finance writer for CPI Inflation Calculator, advises against going on too many internet house tours. “You need a job to get a mortgage,” he advises, “and you might have a good one that you think is recession-proof, but you never know.” “During these periods, banks and governments can implement a variety of credit programs and stimulus packages, which can cause rates to fluctuate unpredictably.” As a result, he suggests using adjustable rate mortgages with extreme caution. If your financial situation is uncertain, Bonebright advises against refinancing your mortgage. “Keep in mind that you’ll have to pay closing charges, which might be quite high. Also, if you’re planning to employ cash-out refinancing to pay off bills, make sure you won’t end up with greater debt after you’ve refinanced.”
Why did money become scarce during the Great Depression?
During the Great Depression, the money stock decreased mostly due to banking panics. Depositors’ faith that they will be able to access their cash in banks whenever they need them is crucial to banking systems.