About 70% of macroeconomists have predicted a US recession in 2022 or 2023. But is that necessarily bad for you?
Famously, Walt Disney said, “I’ve heard there's going to be a recession. I’ve decided not to participate.” This attitude worked out well for him when he started his $100 billion namesake company during the Great Depression.
There are benefits to starting a business during a recession including new problems to solve, lower costs, and long-term advantages.
Whether you plan to start a franchise now, or you’ve already started your business, here’s my take on the benefits you can expect from operating during a recession.
1. New Problems
A recession creates new problems for customers. That in turn creates opportunities for new businesses to solve those problems.
Good franchises are always learning from franchisees and sharing tips and best practices to help the whole franchise. This quick adaptability is what helped so many franchisees successfully navigate COVID and other challenges.
2. Higher Demand
A recession can create a dearth of goods and services that people want and need. Stepping into a market with high demand and no close competitors is ideal for new businesses.
Furthermore, some services are considered recession resistant because people still buy them during a recession. Health care and home services are great examples. People need teeth cleaning, vision care, storm remediation, and roofing regardless of what the economy and macro environment are doing. Since insurance often pays for these services, people can afford them even when money is tight.
3. Optimized Costs
Cost cutting is essential during a recession. Fortunately, franchisors have already streamlined business processes, so costs are already well optimized.
Still, franchisees never stand alone. A franchise has a vested interest in every franchisee’s success. A franchisor will spend time studying markets and watching numbers from locations across the country. If sales decrease or costs increase, a franchise will typically recommend tightened hours, smaller inventory, lower cost versions of products, and other techniques that will lower your costs when necessary.
4. Lower Prices
A recession usually creates opportunities to buy services and products at reduced prices. If it comes to it, you can even renegotiate with vendors to get more favorable terms.
Even though inflation is high in 2022, there are still going to be people who need jobs who are willing to negotiate, and there are still going to be suppliers willing to cut a deal to move their inventory.
5. A Star Manager
Finding an amazing person to manage your business is going to make your life infinitely simpler.
During a recession, some companies lay off their highly compensated A-players – people who legitimately inspire teams, who work independently to solve problems, who deliver results and exceed revenue targets.
This is your chance to hire a star player, possibly at a discount.
6. Government Support
Governments usually offer better credit options and material support to help businesses navigate difficult situations without laying off employees.
SBA loans and disaster assistance, as well as private small business loans, will often offer favorable terms during a recession.
7. Loyal Customers
Customers remember the businesses that helped them during harder times. When the economic outlook gets brighter, they’ll still be your customers and your brand advocates.
Loyal customers concentrate their spending on businesses they trust. They refer their friends. They leave good reviews. And they’re willing to pay higher prices than customers who only show up for discounts.
8. A Chance to Get Ahead
A recession is a chance to accelerate while others hit the brakes.
Some investors need to preserve every dollar to ensure their survival. While they slow down or exit the market, other investors who have been saving can now take reasonable risks and use the opportunity to get ahead.
The average recession lasts 6-12 months. The last recession (in 2020) only lasted 2 months. The Great Recession – the longest recession since WWII – only lasted 18 months. So keep in mind, there’s a narrow window of time when you can take advantage of the opportunities a recession offers.
9. Better Resilience
A business that starts during challenging times develops better management habits.
If consumer spending decreases, then when spending bounces back, you’ll be able to raise your prices. At that time, your business will be a lean profit machine ready to run circles around your competition.
10. More Profit
Most businesses do alright during a recession. Other businesses love a recession because they serve particular needs that customers experience during a downtown.
Either way, it’s more profitable to have your money invested in a business than to lose 9% a year to inflation or do even worse with stocks.
So, should you start a business in a recession?
Each business is unique. Your industry, your location, and the market saturation in your area will determine to what extent you experience the benefits I discussed.
Don’t forget though, a major factor is also you – how you respond to the current market.
Will you lean in to new opportunities today? If you do, you’ll get a chance to combine your business acumen with the best practices of a successful franchisor. You’ll be able to hire outstanding people and hopefully create a thriving business at a lower cost than if you were to create one in the future.
If you’re looking to preserve your wealth and nothing more, I’d suggest Treasury bills, the incredible new 9.6% I bonds, and money markets. There are understandable reasons why this might be the best choice for you.
But if your career is still young…
… if you plan to retire with more cash flow than you have today,
… and if you have experience creating successful business results,
… then there’s a good probability starting a franchise today is the perfect way to create the cash flow you desire now rather than tomorrow.