An Overview

Starting a business might be a good idea when the job market and market conditions are unsure.

During an economic downturn, companies may see a drop in sales, issues with their cash flow, a freeze on hiring, or even layoffs. There may, however, also be possibilities.

In bad economic times, your business could do very well if you pick the right type of business and run it correctly.

Focus on your business idea.

Knowing how unstable the economy is can help you come up with a focused and specific business idea.

Your idea for a business

A bad economy makes some types of businesses more likely to succeed than others. Research what kinds of businesses are doing well and what makes them "recession-resistant" if you want to start your own but aren't sure what kind of business you want to do. Furthermore, you might consider:

• Franchises - a well-established franchise has a good chance of staying in business.
• Essentials" markets, like food and home repairs; 
• Affordable luxuries" markets, like those for gadgets and clothes for older people; 
• Existing businesses - buying a business that already makes money is safer, and you might even get a deal during tough economic times; 

Use your business idea to try it out.

Although the economy is bad, you can use it to figure out what you and your business want to accomplish. Really think about whether people would actually buy your service or product, especially in the current market.

A lack of loan financing is one example of a very unique problem that can make the market difficult. Finding out what these problems are and how they will impact you will help you rethink your business's nature, size, and target market.

For knowledge about what happens during an economic slump and how it affects businesses, you should read the business sections of journals. Gaining knowledge about these problems will assist you in creating methods for dealing with them.

Having access to sources of start-up funding

There are a number of ways to get the money you need to start your entrepreneurial venture.

Using personal funds, like savings, unemployment benefits, or a salary windfall.

• Finance from family and friends—they might be more willing to give you money than a bank, and they might also offer better terms, like more time to pay it back and lower interest rates.
• Applying for a grant—there are many types of business grants created for various types of businesses and project sizes. Granted, it might take some time to apply for one, and it might be harder to get one when the economy is shaky.
• Asking a bank or business partner for a loan may be harder when the economy is bad. Before lending money, any investor will want to look over a full business plan.
• Educate yourself more about how to get money to help new businesses get started.

Learn more about financial Assistance for start-ups.

Strategies for surviving in a bad economy

Managing risks

Finding the biggest risks your business might face and coming up with ways to get rid of or lessen them is important. This will strengthen your company's adaptability and ability to handle changes in the market.

Common risks include: 

• Not getting new customers or keeping the ones you have; 
• More competition; 
• Not having enough cash flow;
• Lacking the ability to predict issues or adjust to a changing market setting

Clients and competition

A clear plan for finding your most important users and building connections with them will help. In case the worst happens, like losing a big customer, you should try to plan and get as many new customers as you can as soon as possible to solidify your growth for the future.

It's also important to think about chances that might come up, like if one of your competitors’ stops doing business.

Maintain a healthy cash flow.

A business's cash flow shows how much money comes in and goes out. Early detection of cash flow issues is key to finding answers that will support steady growth.

Updating your financial records daily and making predictions about sales, profit, and loss can help you figure out when you might need more money.

You can talk to your lawyer or bank about ways to deal with serious cash flow or funding problems you think your business might have in the beginning.

Effectiveness in a tough economic situation

Keeping costs low

Even if your business is just getting started, you may be able to cut costs by: 

Any part of your product or service can be taken away;

There are cheaper choices for parts that cost a lot;

There may be ways for you to save money on your set costs, which you have to pay for no matter how much you make or sell.

Your changeable costs, which change based on how much you make or sell, might help you save money. Materials, packing, extra, and transportation prices are all examples of costs that can change.

Choosing your suppliers and controlling them

If you want to keep your costs as low as possible, you should handle your suppliers with sellers well and check in on them often. As a customer, you will be valued if you consistently place 

orders and pay on time. You can make sure they give you good service by writing up a contract or service level agreement.

Because your bank is also a provider, try to keep your banking costs as low as possible and get the cheapest form of credit you can.

Keep a good bond with your lender, like a bank. Always try to be involved in the business deals between your company and the lender.

If you want to learn more about starting up, check out our guide on common mistakes and how to avoid them.