What Does it Mean for a Business to be Recession-Proof? As a professional in today’s market, everyone has to be thinking about what tomorrow brings for them and the economy overall.
We have been on a serious roller coaster over the past three years and with that, we as workers have experienced layoffs, credit crises, foreclosures and the impending increases in taxes and inflation that seem to be written on the wall everywhere you turn. More and more people are being forced into a position where they need to consider starting a business.
The job market is still very slow and looks to continue that way for some time. People are in many cases looking at franchises or business opportunities to show them how to manage the treacherous waters of being a first-time entrepreneur.
It seems that now, more than ever, the phrase recession proof, or recession-resistant is used to describe an industry, or a business opportunity to advertise its steadfast ability to go unscathed by the current economic conditions. My question is, what does this mean? How can something be “proofed” against the recession? Does this truly exist or is it just marketing speak to entice people to look at something differently?
For one, the business model needs to be a lower investment to be considered recession-proof. In a market where capital is basically limited to the money you see in your bank account, what you have is what you’ve got. Getting loans to open up new locations and finance your way into business is a thing of the past.
This can be scary because the cash you have needs to also cover your working capital and it is important to plan for the length of time it will take for the new business to start paying you a salary. A true recession-proof business opportunity should be a reasonable initial investment of less than $100,000 for you to start your new business venture.
When times are tight, so are our pocketbooks. Don’t fool yourself that a luxury item, despite how great it tastes or how well it drives, will sell consistently when people are having difficulty finding a job. It just doesn’t work that way, when people are struggling, they spend less money. This means that their buying behaviour changes to reflect a need for discounts, bargains and good deals.
It all of a sudden became cool in the last few years to be “frugal”, which is a much better word than “cheap”. All of a sudden it is in style to wear consignment clothing or to go to dinner at a fast-casual place instead of fine dining. A recession-proof business is not a luxury good or service, it’s one that plays to a customer who wants a bargain.
The ultimate make-or-break variable in any business is always cash flow. Cash is king and everything else is a distant second in importance. Overhead is the arch enemy of cash flow. The more you have, the longer it will take for your new business to become cash flow positive. Again, we want recession-proof, so we are looking for low overhead!
Being a lean, streamlined operation and business model never seemed so sexy and if your expenses are reasonable, your cash will come quicker. A recession-proof business should have lower overhead and reasonable operating costs. A consignment business is a great example of this. The inventory is free, operating costs are controlled, the customer base is always getting a deal and the owner only has to worry about the lease……great recession-proof business.
Starting a new business is many times the most freeing and empowering thing that someone can do. Exploring franchises and business opportunities is always a recommendation for people who have never run their own business before.
Look carefully at the industries, available capital and your capacity to manage employees and the complexities of the operation. All of these things will have an impact on your success or failure in the new business venture.