How to Start a Business in an Economic Downturn
If you’re in a recession or even just a slight economic downturn, it’s the worst time to start a business, right?
Not necessarily.
According to Firmex in their “Mid-Market M&A Report: Riding Out the Downturn,” when there are economic uncertainties and the potential for a recession, the number of business mergers and acquisitions tends to decline, so the natural thought process would be that the same should be said of the launch of startups.
However, that’s not necessarily true, and many analysts and financial professionals see downturns as just the right time to start a new business.
Below are some tips that can help guide would-be entrepreneurs to start their business, even if the economic picture isn’t necessarily rosy.
Identify the Right Opportunities
While an economic downturn can be an advantageous time to start a business, this doesn’t hold true across all industries. Some industries are going to fare better even in a full-blown recession, so look for the opportunities that are going to continue to hold strong even if people feel a strain on their finances. One example is tech startups, particularly options that are designed to help individuals or businesses save money or do things more efficiently.
Take Advantage of Low Costs
If the economy is slow or is the midst of a complete recession, this means you can find good deals on some things, such as the cost of renting an office, or supplies. You can even find employees that are willing to work for lower wages, and you can then take these cost savings and invest it into places that will help you grow and strengthen your business, such as your advertising and digital marketing.
You can also pass your own savings onto your customers, allowing you to become a less expensive alternative to businesses that existed before the recession.
Work Efficiently
During a recession, banks and creditors tend to tighten their lending, making it more difficult for businesses to get capital. This can be a big reason people don’t launch startups during these times, even when the opportunity for success exists.
It can also be one of the reasons existing businesses go under. To avoid this obstacle, create a business model built on efficiency where you’re working with cash flow, rather than relying on credit. You can think about working out of your home and lowering overhead costs by hiring virtual employees.
You can then eventually scale your business up only as you have the liquidity and capital that allows you to do so. This is a solid model to follow for many entrepreneurs and startups even when they’re not in a recession.
As a final note, when you’re launching a small business or startup during a recession, don’t do anything that will keep you from being flexible. You want to be able to remain versatile in the face of uncertainty, so don’t commit to long leases or full-time staff if at all possible. Instead, look for short-term rentals for your office, and freelancer and consultant talent.
Versatility and the ability to remain flexible will leave you better equipped to deal with economic challenges and changes as they might come.
