In 1988 I was interested in starting a retail business. My partner, much wiser and
wealthier than I, was someone who 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 that 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, then 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 be able to withstand and even thrive during a recession.
There are however things you should consider when you are buying or running a
business as you head into a recession.
1. Is the business diversified enough to be able to attract enough customers
and cash flow during tough economic times? The key word here is
diversification. When our businesses are too singularly focused on one or few
specific product or service offerings and demand changes as a result of
economic contraction or inflationary pressures, we may be in trouble. A well
diversified business has a variety of offerings that are geared to fill the needs, not
just the wants of our customers. When we give our customers and prospects a
variety of reasons why they should spend their money with us, we create for
ourselves security in the fact that we have continued demand for our existence.
2. 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 businesses that
are profitable survive recessions. The typical recession of which there have been
12 since 1945 has averaged 11 months although the 2008 recession was 18
months and 1982, and 1975 recessions were 16 months. Your business will
need to either have enough cash in the bank to withstand the recession when
people spend less money and the following recovery, or you will have to figure
out how to ensure its profitability during tough times. Recently I wrote an article
on 117 places you can reduce your costs in your business. It might be a good
read. Email dave@pivotleader.com with the title 117 ways and I will send you a
copy of the article. The bottom line is that you will have to sharpen your pencil
and cut your costs to ensure you are a survivor.
3. Plan don’t Panic: You are going to be faced with a variety of scenarios that
might happen to your business as you head into a recession, plan and 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, talk to old timers, and make friends
with your industry pioneers! They will give you insights that 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 your consideration of possible outcomes
you are facing and come up with a plan. Once you have developed a plan or
several optional plans, keep your team accountable to getting results. Panic
rarely works out well in the long run.
Whether you are a business owner or a business buyer, you will want to have a
business that is successful to protect your investment. Understanding that you need
one, a diversity of reasons for customers to spend money with you, two, clarity about
where you can cut costs and thirdly a plan to overcome challenges will give you an
edge over your competitors. Recessions provide opportunities as well as challenges
and your job as a business leader is to be strong enough to seize those opportunities.
Dave Fuller, MBA is a Licensed REALTOR with Team Powerhouse Realty who specializes in
helping buyers and sellers of businesses and commercial properties in Northern BC. Have a
question about your business or its value, email dave@businessrealtor.ca
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