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What is the Best Way to Start a Business During an Economic Recession?

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  • Written By: Dana Hinders
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 November 2016
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Starting a business during an economic recession isn’t easy, but it can be done. With careful planning, the savvy entrepreneur can turn the recession cycle into an amazing opportunity for growth. In fact, some of the best known companies in the world were begun during times of economic recession. Disney began during the 1923 recession, while Microsoft was created during the recession of 1975.

Finding a Recession-Proof Business

Even though the entire economy is affected by a recession, there are some businesses that maintain their strength better than others. When writing your business plan, it’s smart to spend some time thinking about whether or not your idea has what it takes to withstand the impact of an economic recession.

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 fewer vacations and spend more time with their loved ones at home. However, they will still need to visit the doctor to stay healthy, find someone to take care of their children during the workday, make major home repairs, and have reliable transportation. Helping people meet these needs is a great way to stay solvent in a tough economic climate.

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If you have professional skills in an area such as accounting, graphic design, writing, or computer programming, consulting or freelancing could be another way to reach your entrepreneurial goals during a recession. Although companies often have to lay off full-time workers when the economy is bad, they frequently use independent contractors when completing essential projects. As an added bonus, these types of service-based businesses generally have very low start-up costs.

Diversify Your Client Base

In an economic recession, you’ll want to make sure you have as many potential clients as possible. For example, a carpenter that also offers workshops for homeowners who want to learn how to do basic repairs has a business plan that meets the needs of a wider customer base than someone who simply installs shelves and builds custom cabinetry.

When you diversify your business, you’re helping to create multiple streams of income. This provides a “cushion” against unexpected setbacks, such as an equipment malfunction or the loss of an important client. Passive income sources, such as book royalties or fees from the sale of a business-related product you’ve developed, can provide even more security.

Funding Sources

In the case of a newly opened small business, much of your ability to borrow money will be based on the strength of your personal financial history. Before you begin searching for funding for your business, you’ll want to pull a copy of your credit report to look for any inaccurate information that may need to be corrected and check your FICO score. Typically, a FICO score of at least 640 will be needed to be considered for funding.

When you’re looking for funding sources for your business during an economic recession, keeping a positive attitude is key. Even though you may be hearing bad news about the high price of oil or the mortgage crisis, money is available for those who are patient and persistent.

Generally, the money you need to start a business during an economic recession will have to come from several sources. You can start with a SBA-backed loan through your local bank, but that’s not the only option. Microlenders, such as Women’s Business Centers or Community Development Corporations, can be an excellent source of funds for small businesses that need to borrow $10,000 US dollars (USD) or less. Putting technology to work for you is another strategy to consider as well. Peer lending or social financing Web sites such as Zopa.com match investors with people looking for a loan. Business networking sites such as LinkedIn can also be tapped for potential investors.

If all else fails, a part-time job related to the business you plan to start may be a viable option. For example, working at a woman’s clothing store may give you a chance to network with people interested in buying your handmade jewelry while providing you with extra cash while your business gets off the ground.

The Importance of Marketing

Newspaper ads, a slick Web site, and flyFers may seem like unnecessary expenses during an economic recession, but it’s important to keep up your marketing efforts when times are tough. Even in a strong economy, an entrepreneur can expect to spend up to 75% of his or her time trying to attract new customers. If you scale back your marketing efforts in an attempt to save money, you may find yourself with excess inventory and too much idle time on your hands.

To cut costs without losing the opportunity to promote your business, don’t be afraid to get creative. Consider working out a joint advertising campaign with another entrepreneur in a similar business and splitting your expenses. Press releases can be a great free advertising tool, especially if you work to develop contacts at local media outlets who can offer insight as to what types of stories they like to cover. Giveaways, when done correctly, can also be an excellent way to increase public interest in your products or services.

Although attracting new customers is a great ego boost for any entrepreneur, there is truth to the saying that it costs less to retain an old customer than to attract a new one. As part of your marketing campaign, get in the habit of regularly connecting with your current customers. A simple phone call, e-mail, or letter asking how you can be of service can generate a surprising amount of business. Policies that promote feelings of customer goodwill, such as extended business hours and flexible payment options, are another affordable way to make sure your clients know how much they are appreciated.

Look for the Silver Lining

During a recession, people lose their jobs and companies go bankrupt. This is quite unfortunate, but it can be a chance for you to get your fledgling business off to a promising start. When a company closes its doors, you may be able to pick up everything from shelving to fax machines and office chairs for a fraction of the normal price. Laid off workers who feel disgruntled with the current corporate environment may jump at the opportunity to bring their talents to a start-up with potential for growth. By making the best of a bad situation, you’ll be doing your part to help get the economy back on track.

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cupcake15
Post 3

@Cafe41 - That is true. I also think that during a recession more stay at home parents start to look for work in order to pay their bills.

This means that daycares are also a recession - proof business because parents will need someone to care for their children.

This is also a business that does not require a lot of advertising because the demand is so high. As long as you love children and get your proper licensing documents in order this could be another lucrative and satisfying business.

cafe41
Post 2

@Sunny27 - I never thought of that. I think focusing on businesses that offer necessities rather than luxuries is the way to go. For example, a consignment shop is an excellent business especially during tough times because people need clothing and to buy the clothing at a fraction of their original cost is important especially for someone with a limited budget.

People with children will really love this business because their children grow out of their clothes so fast that this way they can buy a good amount of clothes and even sell it back to the store or trade it for other clothing when they grow out of it.

Some stores allow you to do this. You can easily get clothing from liquidators or even your own used clothing. Some people even find clothing at flea markets and garage sales which will allow them to get started with little money.

Sunny27
Post 1

I think that there are some businesses that actually expand during times of economic crisis. I used to work in the staffing industry and this was one industry that always offered opportunities in good times and in bad.

For example, I worked in an information technology contract staffing firm and more companies came to us during the recession because they did not want to hire a permanent employee.

They preferred hiring a contractor that they could dismiss when they did not need them anymore. That is the great thing about contract staffing because companies can flex up or down depending on their business needs and not have someone that is nonproductive on staff because they don’t have enough

work for them.

This is a great business to start and a lot of successful people in this industry make six figures. The only downside with contract hiring is ensuring that the contractor performs their job well and does not make your company look bad.

If you develop a good reputation in one department, the other departments will follow. It is really a relationship business.

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