Did you spend the last few years along with millions of other Americans preparing for a recession that never happened? Despite numerous economic forecasts that were predicting an incoming recession, we experienced steady job growth, higher wages, a rising stock market and strong consumer spending. All indications are that these strong economic indicators will continue, along with falling interest rates.
While that’s great news, that does not mean small business owners should rest easy. There is always the chance that some unexpected event, like the COVID-19 pandemic, can disrupt a growing economy and throw the nation into recession.
Therefore, savvy business owners will prepare their businesses for a recession while the economy is relatively stable. Interestingly, a survey conducted a few years ago revealed that many entrepreneurs thought they could withstand a recession because they survived the COVID-19 pandemic. They say the pandemic “helped them find a greater sense of resilience and preparedness to be successful in the future, despite economic turbulence.”
That said, some businesses are better prepared to survive a recession than others.
While no business is entirely recession-proof, some industries are more resilient during economic downturns. Here are some types of small businesses that have demonstrated resilience during economic downturns, making them relatively recession-proof.
Repair and maintenance services:
During recessions, people opt to have items repaired instead of buying new ones, which results in increasing demand for services that maintain and repair cars, appliances and the home. Businesses like plumbing, electrical, roofing and general handyperson services are often in higher demand.
Health and wellness:
Small businesses focused on health and wellness, such as local fitness studios, healthy food providers and wellness product shops, will likely experience continued demand as consumers try to reduce stress and prioritize their wellbeing.
Local and online discount retailers, such as thrift shops, bargain stores, dollar stores and resale shops, usually thrive during recessions as consumers seek more affordable options for their everyday needs.
Education and training:
As people seek new skills and career opportunities during a recession, educational and training services offering online courses, tutoring, vocational training programs and professional development workshops often see an influx of new customers.
Food and beverages:
People always need to eat! While discretionary spending usually decreases during a recession, essential grocery items and affordable dining options, such as farmers markets and budget-friendly restaurants, remain in demand.
Technology is a necessity for consumers and businesses. Businesses that provide IT support, cybersecurity services and web development services will remain relevant and in demand.
If you already own a business in these industries, it is important to maintain financial stability, adapt to changing consumer preferences and prioritize customer satisfaction.
Best businesses to start in a recession
Many people are afraid to start a business in a challenging economy, so companies that do launch typically garner more attention and attract more customers. The businesses and industries mentioned above are an excellent place to start when looking for recession-proof business ideas because they focus on essential needs and capitalize on changing priorities.
Other good recession-proof business ideas include companies that offer value and convenience, such as:
Pet care services:
During the pandemic, Americans acquired more pets and now prioritize their pets’ well-being. Dog walking, pet sitting or selling affordable pet supplies are always in demand.
Digital marketing and branding:
Smart businesses market more during recessions since they can broaden their reach with less competition fighting for consumers’ attention. This is a great opportunity for entrepreneurs with experience in social media management, web design or search engine optimization (SEO) services to start a business.
Business support services:
Often, businesses lay off employees during a recession or go completely virtual, which increases the demand for services that offer virtual assistants, online project management tools and co-working spaces.
Personal finance and budgeting tools:
If you have a background in accounting or financial services, you can start a business helping people manage their finances, offering budgeting apps, financial planning services or debt counseling.
Starting a business during a recession requires dedication and flexibility. Research your local market, identify needs, and most importantly create a strong business plan focusing on value and customer service.
How to survive a recession
No matter what kind of business you own, you need to make sure you are prepared to survive a recession. Here are some ways you can successfully navigate a recession:
Financial health assessment:
You should assess your company’s financial health before implementing any strategies. This includes reviewing cash flow, profit margins and debt levels. Identifying areas that need improvement enables small businesses to make informed decisions and develop a realistic financial plan.
Build a cash reserve:
Recessions often lead to unpredictable revenue fluctuations. Having cash in reserve can get you through cash flow deserts. It is important to keep enough money to cover at least three to six months of operating expenses.
Streamlining operations and cutting unnecessary expenses are crucial to recession preparation. Evaluate your expenditures, renegotiate contracts with suppliers and explore technological solutions that enhance efficiency. The goal is to maximize resources without compromising the quality of your products or services.
Diversify revenue streams:
By exploring new markets, expanding product lines or offering complementary services, you can ensure your sales are not dependent on one source.
Managing customer relationships:
Maintaining strong relationships with existing customers is essential during a recession. Therefore, communication is key. Inform customers about changes, promptly address concerns and emphasize your business's value. Building customer loyalty in good times pays off when the economy tightens.
Flexible workforce management:
Evaluate staffing needs and consider cross-training employees to manage multiple roles. Implement flexible work arrangements, such as remote work options, to adapt to changing circumstances. Explore temporary or part-time employment solutions to manage costs while retaining skilled personnel if necessary.
Review existing debts and negotiate terms with creditors if possible. Refinancing high-interest loans or consolidating debts may provide relief. Avoid taking on additional debt unless absolutely necessary, and carefully assess the potential return on investment for any new borrowing.
As noted above, businesses often reduce marketing budgets in a recession. But that is a mistake. Focus on cost-effective digital marketing strategies, social media engagement and targeted advertising to reach your audience.
Monitor industry trends:
Stay informed about industry trends, economic forecasts and changes in consumer behavior. Anticipating shifts in the market allows small businesses to adapt quickly and make informed decisions. Networking with industry peers and participating in relevant forums can provide valuable insights.
You are not alone
We are not certain when a recession will occur, but preparing now will enable you to better survive whatever happens. It is also important not to be afraid of economic downturns. Being fearful leads many businesses to reduce or stop investing in their companies, which guarantees you will not grow and can endanger your survival.
It is critical to surround yourself with people who can help, like a SCORE mentor, who provides their services for free. If you do not have a mentor, you can find one here for the guidance you need.
The National Bankers Association Foundation’s mission is to eliminate the racial wealth gap by ensuring underserved communities have fair access to transformative financial education, services, and resources. To accomplish this, we support the work of Minority Depository Institutions (MDIs) through our four strategic pillars, which include: Financial Education, Entrepreneurship and Small Business, Research and Impact, and Collaboration and Capacity Building.
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.