4. Accounting, bookkeeping, or financial planning
Is it a smart time to start a business in a downturn?
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 types of firms are recession-resistant?
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.
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.
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).
What industry flourishes during a downturn?
Industries That Are Critical 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.
During the Great Depression, which industries prospered?
During the Great Depression, print and radio were in high demand. Streaming and teleconferencing are becoming commonplace. I’m reminded of a guy who recently cut his cable because it wasn’t necessary, but retained his fiber Internet and mobile service since he needed them to work from home and binge watch Lego Masters with the kids and Devs with the wife (the friend was me…).
Teleconferencing services like Zoom, in particular, are worth keeping an eye on. Teleconferencing may end up becoming the glue that ties society together, from the elementary school to the creative office and everything in between, as social distancing dominates public conversation.
What industries are always in demand?
Tax preparation and bookkeeping services have cheap overhead because they don’t require a fancy location or expensive equipment. In addition, the normal rate for good tax preparers and bookkeepers is a respectable living wage.
However, if you don’t like numbers, preparing people’s taxes and keeping track of their accounts isn’t the business for you.
Catering Business
To manage a catering business, you don’t need pricey, fancy kitchens or skilled chefs. You could also run your business from your house, lowering your overhead. People and businesses are prepared to pay a premium for professional caterers, making this a lucrative business for those who work hard and have a strong desire to succeed.
Website Design
Websites have evolved into the “windows of all successful businesses.” As a result, website designers who are both talented and imaginative are in high demand. Again, cheap costs and high rates make web design one of the most successful enterprises to operate, assuming you have the necessary creative and technical skills.
Do things get less expensive during a recession?
Lower aggregate demand during a recession means that businesses reduce production and sell fewer units. Wages account for the majority of most businesses’ costs, accounting for over 70% of total expenses.
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.