Is it smart to start a business in a recession?
Many people frequently ask whether it is a good idea to start a brand new business in the middle of a recession. As the recession that started in 2007 continues nearly four years later, entrepreneurs all over the world wonder whether they should go ahead and take the risk or wait until things start to improve before beginning a new venture. This is an important decision, as many people will likely have to quit their jobs or use their savings in order to finance the business.
So, is it smart to start your business during a recession? Let’s focus on the negatives first.
During a recession, there are fewer consumers purchasing goods and services. This is due not only to unemployment, but the fact that when times are uncertain, people think it is better to save money for emergencies than acquire items they do not need. Likewise, many companies are unwilling to spend money during a recession, again due to uncertainly.
Everyone will tell you that it is riskier to start a business during a recession because no one is spending money. But is it any riskier than any other time? Starting a business is a risk, and people succeed and fail regardless of the economic conditions.
Banks aren’t Lending:
This particular recession has caused banks to stop lending to small businesses. This makes it quite difficult to finance major purchases for your business, or to even get a line of credit. If you can’t borrow funds, then you can’t grow your business.
With so many businesses going bankrupt during a recession, and because people are spending less money, a recession may present an incredible opportunity for someone to start a business. Is this crazy? Not at all; think of it this way- if no one is spending money, then businesses will lower their prices to entice a sale. If you need to spend a lot of money for your business, you can find great savings during a recession, because everyone is motivated to sell.
Due to high unemployment, you may be able to find highly qualified employees willing to work for less money. While you shouldn’t take advantage of your employees, controlling employee costs is a great way to save money, and hopefully ensure your long term success.
Advertising costs decrease dramatically during a recession. Many outstanding businesses reduce their advertising during a recession in order to ensure that they can pay suppliers and employees. This leaves ample unsold advertising inventory available. You’ll be able to find good deals to get your business off the ground.
The ability to negotiate just about everything increases during a recession. From rental space to machinery to supplier financing, a recession can act like a huge sale for your business. You can find great savings to get your business off the ground; such savings can then be used for marketing expenses.
Your competitors may be struggling. Long standing businesses tend to have debt, too many employees, and in many cases, a sense of complacency. This makes them less competitive, and (for larger competitors), slow to react to market changes. Starting fresh and new when your competitors are fat and bloated can give you a huge advantage.
So, should you start your business during a recession? It’s up to you to determine how the conditions appear in your industry. However, you shouldn’t let the recession keep you from pursuing your dream.