Starting a business during an economic downturn is not easy, but it can be done. With careful planning, the smart entrepreneur can turn the recession cycle into an incredible opportunity for growth. Some of the best-known companies in the world began in times of economic recession. Disney began during the 1923 recession, while Microsoft was created during the recession of 1975.
Find a Recession-Proof Business
Even though the entire economy is affected by a recession, some companies maintain better than others of their strength. When writing your business plan, it is smart to spend some time thinking about whether your idea has what it takes to withstand the impact of an economic downturn.
When looking for a recession-proof business, think about the basics. When times are tough, people will cut back on restaurant meals, entertainment, and other luxuries. People who are worried about their finances take less vacation and spend more time with their loved ones at home. However, they will still have to visit the doctor to stay healthy, find someone to take care of their children during the workday, make major repairs at home, and have reliable transportation. Helping people meet these needs is a good way to stay solvent in a difficult economic climate.
If you have professional skills in an area such as accounting, graphic design, copywriting, or computer programming, consulting, or freelance could be another way to reach your business objectives during a recession. Although companies often have to lay off full-time workers when the economy is bad, they often use independent contractors when completing essential projects. As a bonus, this type of service-based business generally has meager start-up costs.
Diversify Your Customer Base
In an economic downturn, you’ll want to make sure you have as many potential customers as possible. For example, a carpenter who also offers workshops for owners who want to learn how to do basic repairs has a business plan that meets a broader customer base’s needs than someone who installs shelves and builds custom cabinets.
By diversifying your business, you are helping to create multiple revenue streams. This provides a “cushion” against unexpected setbacks, such as equipment malfunction or an important customer’s loss. Sources of passive income, such as book royalties or fees from selling a product related to the business you have developed, can provide even more security.
Sources of Financing
In the case of a newly opened small business, much of its ability to borrow money is based on the strength of its personal financial history. Before starting the search for financing for your business, you will want to get a copy of your credit report to look for any inaccurate information that may need to be corrected and check your FICO score. Generally, a FICO account of at least 640 will be needed to be considered for funding.
When you are looking for financing sources for your business during an economic downturn, maintaining a positive attitude is the key. Although you may be hearing bad news about the high oil price or the mortgage crisis, money is available for those who are patient and persistent.
Usually, the money you need to start a business during an economic downturn will have to come from several sources. You can start with a loan backed by the SBA through your local bank, but that is not the only option. Microcredit entities, such as Women’s Business Centers or Community Development Corporations, can be an excellent source of funds for small businesses that need a $10,000 or less loan. Putting technology to work for you is another strategy to consider: peer loans or social finance websites like Zopa.com party investors with people looking for a loan. Potential investors can also exploit business networking sites, such as LinkedIn.
If all else fails, a part-time job about the business you plan to start may be a viable option. For example, working in a woman’s clothing store can allow you to network with people interested in buying your handmade jewelry while providing you with extra money while your business is off the ground.
The Importance of Marketing
Newspaper ads, a slick website, and flyers may seem like unnecessary expenses during an economic downturn, but it is important to keep your marketing efforts in difficult times. Even in a strong economy, an entrepreneur can expect to spend up to 75% of their time attracting new customers. If you scale back your marketing efforts to save money, you may find yourself with excess inventory and too idle time on your hands.
To reduce costs without losing the opportunity to promote your business, do not be afraid to be creative. Consider developing a joint advertising campaign with another entrepreneur in a similar business and dividing your expenses. Press releases can be a great tool of free advertising, especially if you work to develop contacts in local media that can offer insight into what types of stories they like to cover. Raffles, when done correctly, can also be an excellent way to increase public interest in your products or services.
Although new customers’ attraction is a great ego boost for any entrepreneur, there is no truth saying that it costs less to keep an old customer from attracting a new one. As part of your marketing campaign, acquire the habit of regularly connecting with your current customers. A simple phone call, email, or letter asking how you can be of service can generate a surprising business amount. Policies that promote the client’s goodwill, such as extended work hours and flexible payment options, are another affordable way to make sure your customers know how much you appreciate them.
Look for the Silver Lining
During a recession, people lose their jobs, and companies go bankrupt. This is unfortunate, but it can be an opportunity for you to get your budding business to a promising start. When a company closes its doors, you may be able to pick up everything from fax shelves and office chairs for a fraction of the normal price. Dismissed workers who are dissatisfied with the current business environment can jump at the opportunity to take their talent to a start-up with growth potential. By doing the best of a bad situation, he will do his part to help the economy get back on track.
- Newspaper ads are a great tool for local customers interested in a new business.
- Social media is a free and easy-to-use platform to generate buzz about a new business.
- Home-based businesses online and others provide a relatively low-cost, low-risk avenue for starting a business during difficult economic periods.
- Jobs are usually scarce during a recession.