Should You Start a Business in a Recession?

Entrepreneurs with bright ideas are always going to be thinking of new ventures they could set up, which begs the question: is it worth it to start a business in a recession?

The answer, as it turns out, isn’t exactly a straightforward ‘yes’ or ‘no’.

We’re going to explore this question in detail. First, we’ll look at what to think about before embarking on a new business. Then we’ll look at the reasons for and against, to reach a balanced confusion.

Considerations when starting a business

There are a number of things that you need to consider before getting started with a new business. Here we’re going to go through some key considerations and explain why they are particularly important when it comes to starting a business in a recession. 

It is extremely important to register your business as it provides legal recognition and protection.  Moreover, during an economic downturn, there can often be more opportunities for certain government support. Making this a crucial step, as it establishes your business as a legitimate entity and will help you to gain access to various benefits and opportunities.

Presumably, if you’re considering starting a new business, you have a solid business idea. However, remember to begin by also conducting competitor analysis, otherwise, you risk being quickly swallowed up by existing rivals.

One thing to keep in mind during the decision-making process is the concept of decision fatigue, which refers to the deteriorating quality of decisions as a result of making too many choices or being overwhelmed by information. It's important to pace yourself and avoid decision fatigue by breaking down considerations into manageable tasks and seeking assistance or advice when needed.

Once you’ve settled on a great idea and figured out your niche, as well as how you stack up to any competition, you can look at the following factors.

Finances

Every business needs money to stay afloat. Recessions, in particular, highlight the importance of great finances, because if you’re not able to keep up with changes in the economy before starting a business, it’s unlikely to get better afterwards.

So, if a recession has hit but you’re still determined to start your business, make sure you start by checking your finances.

Start by asking yourself some of the following questions: 

• Could you handle another downturn? 
• What would have to happen for you to completely run out of funds, and if that does happen, what’s your plan? 
• Do you have a rainy day fund?

Once you’ve considered the basics, it’s time to get more technical. Starting a business in a recession can mean there's a higher likelihood of unpredictability, which necessitates good financial forecasts and contingency plans.

To help with this, you should consider investing in risk tolerance software or financial planning software. The great advantage of using these tools is that you can continue to feed them your business' financial data, giving you an up-to-date analysis of your cash flow and helping you to create long-term financial plans. 

Tech

Recessions are tough, as is starting out as a new business. That doesn’t mean it’s time to throw in the towel, though! An important mitigating action would be finding yourself the right tools.

In the case of brand-new small businesses, you’ll need tech that can help you stay on top of new developments and make sure internal processes run smoothly all the while. 

For example, you’ll want to look into the different payroll services small business owners are using. This will help you invest in the right solution for your business, so you can pay your employees correctly right from the get-go.

This is just one example that can be extremely useful for up-and-coming small businesses. But it doesn’t stop there, you should also consider using the following:

• Communication software: Platforms like Slack can be essential for making sure your teams are able to communicate easily as well as helping to facilitate effective remote working through it’s “huddle” function and integration options.
• Project management software: Tools such as Trello can be a lifesaver when you’re starting a new business, as they help you to keep organized and on top of things. Trello, in particular, can be great for helping you set your goals and easily share documents with members of your team.
• Social media and email marketing tools: From Mailchimp to Buffer, these tools have become a necessity. This is because they can help to automate a lot of your marketing, from sending updates to your customers to helping you schedule your content - saving a lot of time as well as ensuring that you’re reaching your new audience. 

Ultimately, these tools help you to start off on the right foot, which is a huge boost for efficiency.

Expertise

To keep a great company going, you need all kinds of people on board, from ideas people to planners and managers.

But early-stage businesses often lack the budget required to hire a fully-fledged team, let alone navigate recession constraints while doing so.

When setting up your company, identify the essential roles for operation. Naturally, this will significantly differ based on your business type and industry. Look into competitors’ structure and refer to your original business plan if needed. 

You may find that the recession forces you to reconsider roles you’d initially planned for – full-time accountants, HR personnel, or social media managers, for example. So look into average salaries for essential staff and decide what and who you can afford to take on.  

Consider filling these key positions with people who have a wider skillset and may be able to help with additional tasks to avoid needing to hire multiple employees. It may also be worth setting aside a budget to upskill key staff to allow them to take on a wider remit of responsibilities. 

Of course, you should balance this with stretching your staff too thinly. There’s no use hiring an A-team if you can’t ensure they remain productive and satisfied.

On top of this, consider what roles can be filled part-time or which services you can outsource. For example, working with a freelance marketing consultant or communications agency during the first three months may be hugely beneficial. 

You’ll not only increase brand awareness and reach during the critical launch phase, you can also learn from their expertise. This will enable you to gain valuable skills so you can take on future marketing tasks yourself.

Later down the line, you can then analyze which roles may require a full-time employee or which tasks are easily done in-house by existing team members.

Starting a business in a recession: reasons in favor

So you’ve thought about the big topics above, and decided you’re all set to start a business. Should you wait until after the recession eases a little, or should you just go for it now?

Here are the big reasons why you should take the plunge and jump right in.

Modern tech can support you

We’ve already given you the spiel on finding the right tech. But what needs further mention is the fact that modern tech is designed to help you with all kinds of trouble, including but not limited to recessions.

If the things holding you back amount to worrying about managing inventory, turning a profit, and/or getting your online store set up in the first place, it’s well worth it to learn about the tools that can help you get these things done.

For example, a dedicated Shopify integration can help you automate workflows and get things running super smoothly. That’s hugely helpful during a difficult time like a recession.

Customer loyalty

It might sound counterintuitive to rely on customer loyalty at a time when your customers are strapped for cash. However, consider it this way: a customer that’s loyal to you during times of difficulty will be much more likely to stick around when the economic climate improves.

In other words, it’s about a mindset shift. You’ll want to see a recession as an opportunity to build strong client relationships that can weather any storm.

Plus, you can offer rewards in exchange for loyalty. This incentivizes customers to stay with you, and helps you show that a loyal relationship goes both ways -  that you’re just as committed to them as they are to your company.

Starting a business in a recession: reasons against

Of course, we’re not going to sit here and tell you there aren’t any reasons not to start a business in a recession. The following factors might shift your preference towards waiting it out.

Customer sentiment

You’ll likely find that you’re able to get more bookings and sell more products when you operate your business outside of a recession. That’s because recessions have customers feeling all kinds of stress, which in turn makes them less likely to take a chance on a new product or service.

You’ve got to remember that you don’t have multiple years’ worth of trust to fall back on. You’re an unknown factor in their eyes, so you’ve got to be worth the risk when funds are short.

Limited opportunities

Of course you’ve heard the saying, “when the going gets tough, the tough get going”. Well, sometimes they get going so fast that it leaves the rest of us struggling to catch up. And that means fewer opportunities to go around.

Of course, in this case, it doesn’t actually matter how ‘tough’ you are. Starting a new business is a big thing to do, and it’s not for the faint of heart. If you’re not willing to fight tooth and nail for the few opportunities that do come up, it’s not a sign that you’re weak - just that a recession isn’t the right time for you to be starting up a new business.

Mitigating the challenges

What we’re getting at here is that there’s no such thing as a perfect time to start a business. You’ll always face challenges, it’s just that a recession comes with really specific ones.

Here’s how you can weather those.

Stay highly organized

Recessions are often chaotic periods. People have less money to spend, so businesses have to think fast and adapt to ever-changing circumstances swiftly.

The best way to ensure that you’re able to do this is by being as organized as you can possibly be. Not sure where to start? Consider doing the following:

• Use tools like Asana and Trello, so you can stay on top of your tasks but also so that you and your team all have access to the right information and your collective goals are clear.
• Draw up and prep your audit checklist before anyone’s actually called for one.
• Invest in secure cloud-based software to keep your documents safe, organized, and easily accessible to your whole team, whether they work remotely or they’re in the office.
• Get your tax forms fully ready so you can file them the moment you’re able to and so you’re never behind on a single thing.
• Use collaborative calendars externally and internally. Whether it's your supplier or your HR manager, collaborative calendars can be a great tool for ensuring that everything runs smoothly and everyone is on the same page.

Keeping your affairs super organized leaves you with enough room in your schedule to handle incoming problems. Plus, it just looks great and reduces stress to have all your affairs in order at all times.

Adapt and adjust

As we’ve mentioned, turbulent times don’t mean you need to quit before things get worse. They definitely do mean that it’s time to be flexible.

Are normal marketing strategies just not working? Don’t give up! Look for where your customers are. If they’re spending time on social media, then start looking into TikTok marketing strategies or how to effectively captivate an audience on Instagram. Meet them where they are, and then see if you can sell to them.

Additionally, studying the best sales funnel examples can provide valuable insights into optimizing your marketing and sales processes to maximize conversions and revenue generation during a recession.

By understanding your target audience and their behavior and preferences, you can tailor your marketing efforts to effectively reach and engage them even during challenging economic times.

The final verdict

Getting a business off the ground is always a challenge, though recessions add an extra layer of difficulty. That’s why we wouldn’t recommend just anyone to start a business in a recession.

That said, it’s also perfectly possible to flourish regardless of recessions.

All you need to do is make sure you’re fully prepared for the kinds of difficulties you’ll be facing. A recession isn’t as lucrative as a time of plenty, so it’s absolutely vital to prepare accordingly. 

When you keep the specific conditions and challenges of the economic climate in mind, you can enjoy success with your brand-new business.