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.
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 arithmetic, then moving to accounting or putting up a comparable company could be one of the finest recession resistant 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!
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.
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).
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.
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 should I buy to combat depression?
Government and corporate bonds, certificates of deposit (CDs), savings, and money market accounts are some additional relatively safe assets. Bonds work like this: you pay a set amount of money, say $50, and you can cash it in for $100 after 10 years, resulting in a guaranteed interest rate. However, you won’t be able to access the money until the bond matures. The only risk you face is if the company or government goes bankrupt and is unable to make good on its obligations. Although government bonds are meant to be safe because they can be paid back with tax revenue, there have been cases of governments defaulting on their local currency debt, such as Russia. CDs function similarly to bonds, except that they are issued by banks and credit unions. In addition to interest, savings and money market accounts provide a return on investment in the form of dividends. Instead of having to wait for your money, you may access it whenever you choose. However, you often get a lower rate of return than you would with bonds or CDs, so you must consider how soon you will need the money before deciding which option is best for you.
During a recession, what jobs are at risk?
The advent of artificial intelligence and automation will coincide with the next recession, putting all occupations that a computer or robot can do faster and better in jeopardy. “If organizations can utilize cheaper software and robotics to complete tasks faster and more correctly, it will surely effect people’s job security,” says Yaniv Masjedi, chief marketing officer of corporate communications provider Nextiva. Jobs in manufacturing plants, secretarial functions, inventory management, and responsibilities in the food preparation and service business are among the most susceptible, according to Masjedi. “Because these tasks are highly repetitious,” Masjedi says, “automation can replace such a workforce with robots that can duplicate the movements with 99 percent accuracy, greatly lowering the danger of failures and error.” “Health crises like as pandemics have no effect on robots or software programs, making it an even more realistic alternative for corporations that wish to maintain operations without endangering anyone’s health.”
What are some recession-proof investments?
- Assets, companies, industries, and other organizations that are recession-proof do not lose value during a downturn.
- Gold, US Treasury bonds, and cash are examples of recession-proof assets, whereas alcohol and utilities are examples of recession-proof industries.
- The phrase is relative since even the most recession-proof assets or enterprises might suffer losses in the event of a prolonged downturn.
Who profited the most 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.)