A recession provides as many opportunities as challenges
In 1988 I was interested in starting a retail business. My partner, much wiser and wealthier than I, had weathered several recessions in his entrepreneurial quests and shared his insights that have stuck with me over the years. Here is what I learned from watching, listening and actively being involved in business ownership and investing through several recessions.
Recessions are part of the natural business cycles; they happen regularly in the economy and are unavoidable in the course of the life of an entrepreneur. Other parts of the cycle include the bottom, recovery from a recession, market expansion, and then market peak followed by another recession or market contraction.
For businesses to be successful, they need to withstand and even thrive during a recession. There are, however, things you should consider when buying or running a business as you head into a recession.
- Is the business diversified enough to attract enough customers and cash flow during tough economic times? The key word here is diversification. Businesses too focused on one or a few specific product or service offerings could end up in trouble if demand changes as a result of economic contraction or inflationary pressures. A well-diversified business offers a variety of products or services that are geared to fill its customers’ needs and not just their wants. By giving customers and prospects a variety of reasons to should spend their money with us, we create security for ourselves.
- Lean means green! There is a saying that if you are not green, you are not growing. When times are tough, your business needs to be lean. If you are considering buying a business and it’s marginally profitable, there could be value in the business if you can figure out how to cut expenses. Only profitable businesses survive recessions. The typical recession – there have been 12 since 1945 – has averaged 11 months, although the 2008 recession was 18 months and the 1982 and 1975 recessions were 16 months. Your business will need to either have enough cash in the bank to withstand both the recession (when people spend less money) and the subsequent recovery, or you will have to figure out how to ensure its profitability during tough times.
- Plan, don’t panic: Many of the long-standing businesses in your sector understand what it takes to be successful during recessions. Research what it takes to be successful in your industry during recessions by talking to old-timers and making friends with your industry pioneers! They will give you insights you can incorporate into your business plans for tougher times. Your job as a business owner or investor is to make sure that your business survives and thrives during economic contractions. Without a plan, you are going to be overwhelmed and anxious. Business owners who have plans sleep better, feel better and are more successful. Get your team involved in considering possible outcomes you are facing and devise a plan. Once you have developed a plan or several optional plans, keep your team accountable for getting results. Panic rarely works out well in the long run.
Whether a business owner or a business buyer, recessions provide opportunities as well as challenges: your job as a business leader is to be strong enough to seize those opportunities.
By David Fuller
Dave Fuller, MBA, is an award-winning business coach and a partner with Pivotleader Inc.