How to Start a Business During a Recession

Navigate the launch of your SME during a recession.

The one looming issue for most people when it comes to the idea of recession is job loss; the cascading effects that follow, be it: maintaining payments, credit issues, the possibility of bankruptcy, etc. can all happen regardless of whether you’re working for yourself, or for another boss. In all honesty, if you really want to start your own SME, recessions can be the ideal moment. 

As Joe Chatham, the Founder & Managing Partner of USE 500 Clubs LLC has said, “If you value autonomy, being in control of your own time, guaranteed employment …” then starting your own business could be the ideal solution for you, regardless of whether it’s mid-recession or not.

For some people, starting your SME mid-recession may be your only option. As most companies tend to go through a period of job losses mid-recession, starting your own business will place you at the helm of things, which automatically circumvents the possibility of being laid off. While this is a plus, there are a number of other elements you must consider before establishing your own SME to ensure success.

Benefits of Starting a Business During a Recession

Let’s take a look at the benefits first:

There Are Better Options for Credit

Banks and Credit card companies are more likely to lower interest rates to encourage spending and keep the economy going.

With more people looking into various options to help support them with business financing, companies will have to lower interest rates, even more, to compete with each other to attract more borrowers.

SME Innovation

• A recession forces people to think outside of the box
• Not only will financial institutions most likely offer financial solutions to help with the times, but these kinds of situations will require SME owners to create new solutions to maintain business processes.

Large Corporate Cut-backs Could Benefit SME Owners

• As larger corporations look to optimize their ROI they may cut more than labour costs, meaning that vendors whose prices were high due to competitive need, may be in need of you to secure goods from them causing them to lower their prices.

You’ll Have Your Pick from the Talent Pool

• As mentioned previously, labour costs are one of the areas that get cut to save businesses money. This means that there will most likely be more people looking for work, which can benefit your SME in creating more of a competitive landscape to negotiate salaries and get more opportunities for top-tier employees.

While the benefits do seem quite motivating, it’s important to look at both the positives, and negatives before making your decision.

Disadvantages of Starting a Business During a Recession

Here are some of the disadvantages of starting a business during a recession:

Lack of Funding

• What once may have been an easily used source of income to start your business may have to be diverted to deal with the daily costs of simply living. No matter the negotiations, and the better business you can negotiate, starting a business always costs money.

Marketing May Be Challenging

• As a new business, you need to establish your brand, and get people to know your name. Establishing an organic inbound interest both from the internet, referrals, or in-person inquiries can prove to be more difficult as people tend the tighten their purse strings mid-recession.

Rising Interest Rates

• While interest rates are sometimes kept low to stimulate spending, in this case, our inflation is caused by increased interest rates. This equates to higher spending for businesses and could, especially if you are on a variable interest rate with your financial lender, significantly increase your overhead costs.

Problems with Vendors

• Due to a lack of incoming funds, your vendors may require you to pay more quickly for their services. It isn’t only your store that is facing financial hardships, as rising costs cut across all aspects of business, you may need to start sourcing from new vendors and renegotiating with your current ones to maintain your desired supply and quality of goods and or services.

Final Thoughts on Starting a Business During a Recession

While there are both advantages and disadvantages to starting an SME mid-recession, the one MAIN takeaway you need to do if you choose to start your SME during these times is a plan!

Plan accordingly, take into account all the things that could possibly throw a wrench into your business plans, and recession-proof your business.

Is Starting a Business More Difficult Post-Pandemic?

Cubeler Business Insights helps SMEs navigate the post-pandemic landscape. Learn more from this exclusive article on Becoming an SME Owner in Post-Pandemic Canada.

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