8 Reasons You Should Start A Business During Economic Downturn

An economic downturn is a terrible time for almost everybody. Businesses post huge losses, employees lose their jobs. With rents, mortgage and utilities to pay, children to send to school, and food to put on the table, recession can easily drive society into a downward tailspin. Not to mention those who have chronic ailments that add to that bitter feeling of anxiety and depression.

No wonder people tend to keep their cash and refrain from spending to prepare for what’s to come. In a recession, emotions often take over to influence someone’s decisions. Indeed, you decide to either play reactive and defensive, or you explore opportunities and push them. Most Filipinos may not be too willing to venture into business and rely solely on their employment as source of livelihood. But for those who pursue their dreams as entrepreneurs, it can be both a rewarding and educational experience.

To support that statement, we’ll pepper this article with quotes from Warren Buffet, who is famous for driving against the current and has reaped huge benefits from his wise business decisions.

“Risk comes from not knowing what you are doing.”

Recession may be a word nobody wants to hear. But once it arrives, the recession should become an opportune moment that one has to take advantage of great care and proper execution, and not bow down and wait for signs of recovery. So here are our top reasons why an economic downturn is the best time to start a business you’ve been planning to establish.

It’s cheaper to set up the business.

Image by StockSnap from Pixabay

In many ways, you’ll need to spend less on building your business. You can buy perfectly working equipment and furniture from ailing businesses forced to shut down. Plenty of vacant spaces could mean you can leverage for cheaper rentals. But your business will benefit most with favorable salary people are willing to accept at this time than when the economy is strong.

“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Recession inspires innovation.

When you are starting your logistics company aimed to augment the dire need for home delivery for online shopping, bright ideas flourish when employees are given the chance to share their innovative ideas. But as bad a recession can be, this time might bring out the best of an employee’s ideas.

Innovation can come from the brilliant minds of workers, or fed from customer experiences with the aim of streamlining how to do the business and cut roadblocks along the way. For example, your information technology firm can help companies bring their restaurant menu to online ordering to augment dip from dine-in customers.

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Plenty of skilled people available.

Recession will bring out a lot of unemployed people. Although this is overwhelmingly a negative experience to many, losing their jobs may be the break others are waiting for. With stable jobs and steady employment, they can be indecisive with their plans and stick to the status quo. But when they lose their jobs, workers tend to reinvent themselves and churn out plenty of ideas as a way to land a job and contribute to the business. Your business will benefit from a deeper pool of skilled and experienced talent that can help you navigate the rough waters as a starting entrepreneur.

Customers look for change.

Whether it’s the change in needs or simply looking to cut costs, customers during this time could be looking for an alternative to their current suppliers. A startup with low overhead costs should be nimble enough to undercut a portion of the competitive market. Clients who typically look more closely at their expenses could easily switch to a cheaper alternative. Price-conscious customers could turn to your second-hand furniture store instead of the pricey brand-new ones from established retailers. Good quality products and a competent support network for less means happy clients and more business referrals.

It is easier to gain a foothold in the market

Larger players in the market may be fragile and struggle to float as they deal with bloated expenses and non-performing assets. Smaller ones may not have enough cash flow to pay their leases amid dwindling sales. But your agile company to start at this point is likely flexible and adaptable to the current business environment. You may choose to rent a small corner with a focus on product and service instead of unnecessary overheads, and that should sustain the business more than the competition.

“The best chance to deploy capital is when things are going down.”

Central banks set lower interests.

The interest rates imposed by central banks of many countries are often lower in the economic downturn. This is to encourage consumer spending. But this also benefits your business as loans can be obtained in business-friendly terms. The use of credit cards as a lifeline of the business during this time of lower interest rates also makes a lot of sense.

Smart investors are on the lookout for attractive businesses

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

If your coconut water business is in need of funding to buy property or equipment, savvy investors could look to partner with you if they see your business as viable and profitable in the long term. It is not unusual for investors to pull out their funds from a faltering stock market and instead finance businesses that look to provide promising returns. Smart investors could include friends and family who are not so keen on investing in the stock market at this time.

You have more negotiating power.

When the economy is down, many vendors struggle to move or sell their goods and landlords expect tenants to break leases. This poses an opportunity for an entrepreneur like yourself to negotiate for better deals for your business. You can ask for lower rent in your business premises, longer terms for paying orders for sustained inventory or a discounted price of raw materials. When economy prospers, these terms often favor the vendors and landlords as demand grows.

Switching on to your business during an economic downturn can be a scary prospect. However, the reasons above should provide at least a glimmer of hope that there’s a better alternative than being preoccupied with anxiety and wasting time waiting for everyone to weather the storm and towards recovery. Time is an investment that wasn’t mentioned above, so executing carefully planned decisions will help start-up businesses stay ahead of the competition and take advantage of a situation that usually happens once in a decade or so.

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

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