James Sanders on whether to start a business during tough economic times

James Sanders on fears of Recession

If you’re asked to name a successful business, the likes of Uber, Airbnb or Burger King may spring to mind. But did you know that all of the above started during difficult economic times or even during a recession?

With the UK’s economy the slowest in the G7 to bounce back after COVID-19, an ongoing rise in cost of living and uncertain times ahead, you may think that right now is not a good time to stretch your entrepreneurial wings.

Actually, right now could be the best time to launch a new business – as the extremely successful names listed above can contest.

Uncertain times breed innovation

Times of uncertainty breed innovation. This is something that we’ve all seen again and again. Both Airbnb and Uber, for example, launched in the wake of the global financial meltdown between 2007 and 2009.

And there is evidence to suggest that some of the biggest and most successful businesses have been launched during difficult economic times. Furthermore, if a business can launch during the worst times, it’s well set up to be flexible enough to last for years.

Starting a business during rough economic times actually makes you far more aware of risk and gives you a much more dynamic outlook. This in turn helps you to make it a success – and equips you with the tools you need to go to the distance. I would always advise entrepreneurs to go ahead with their business, providing they really do have a strong business plan and strategy.

Tough times ahead for the UK economy

The global economy is frantically adjusting as the hits keep coming. Any kind of recovery that seemed to be on the way towards the end of 2021, as COVID lockdowns eased and consumer spending increased, have been reigned in by events of 2022 so far.

Output contracted at a global level from Q2 2022, largely due to downturns in both China and Russia. US consumer spending also failed to reach the heights of previous predictions. Of course, the entire world economy has been dealing with the pandemic resulting in high inflation just about everywhere.

This is triggering austerity measures and ever tighter conditions. In the UK, the British Chambers of Commerce (BCC) have said that they expect the country to fall into recession before the end of the year. Inflation will reach 14% in Q4 2022 (previous predictions were 10%) and growth is expected to reach just 3.3% (compared with 7.4% in 2021).

It’s expected that consumer spending will grow by 4% by the end of 2022 and then contract by 0.4% into 2023. However, you absolutely still can launch a small business even when the forecast is bleak. And you can still be successful.

Benefits of starting your business during a recession

Of course a period of recession represents a challenge for people at an individual level and for businesses. Some may lose their salaried roles or be forced to slash spending in order to afford rising energy bills, for example.

I would say that the likely success of a small business during a recession does depend on the kind of business you want to launch. I invest in innovative tech start-ups for the most part and am always interested in businesses that have something different to bring to the table.

Let’s assume that you have a viable business idea and a carefully constructed strategy. Here are some reasons why you may find launching during a recession a good idea, rather than something to avoid:

  • It’s likely that there will be less competition in your specific sphere. This is because the majority of start-up owners and entrepreneurs get spooked by difficult times. But if you are driven, determined and super focused, you may even be able to corner a niche market.
  • Customers or clients that you find at these times are far more likely to stay with you as the economy recovers and bounces back. This is particularly the case if your business has been able to offer them something they needed at an affordable price at a time when they needed it most.
  • Innovation drops sharply for established businesses in tough times. These are the first areas of their business that they will simply put a halt on – things like research and development and all of the creative time that goes into making a difference. This means there is a space for your creative ideas and you may find that this opens doors that would have stayed closed during better economic times.
  • Prices fall across the board, including your overheads. It’s not yet clear exactly what the new Prime Minister will do for business regarding energy costs, but it seems likely there will be some measures in place.

Always plan for the worst and you can’t go wrong

If you are starting with very little capital, then there are steps you can take to find the right kind of financing for your venture. My advice is to get as much help and advice as possible from your own network before applying for a loan.

Make sure your business plan and strategy is watertight and don’t restrict your applications to big banks only. Take advantage of any friends you have within business to get their advice, and always ensure you have a financial backup plan that separates your personal finances from the new business.

It’s best to ensure you have enough cash reserves behind you to live off for up to 12 months before you launch, so that you have time to hit the revenue through the business.

Budget extremely carefully so that you know for sure you can cover all of the payments you may need over the next year – everything from your mortgage to utilities and food should come under this plan.

While coming up with the financial backing for new business may be your focus, do not allow yourself to be caught out should it take a while for the venture to take off. This is absolutely crucial, particularly when starting out under the current economic conditions. Trust your gut, plan carefully and go for it – if your business idea is good enough, you will succeed!

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