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Why starting a business during a recession can be a good idea

clock63312045.jpgIt may surprise you to learn that periods of recession, may be one of the best times to start a small business. Some of the reason may be out of necessity. Many unemployed workers find that if they have been laid off, they may have no choice but to strike out on their own. Or you may have had an idea for a small business for a long time, but now that you are out of a job, you actually have time to work on that idea. In addition, many people are not only unemployed, but underemployed during a recession. Both of these conditions can stimulate the entrepreneurial spirit, and lead to the creation of new small businesses. Interestingly, the creation of new small businesses is often what leads us out of recession since small business drives the economy to a large extent. So if you find yourself with more time on your hands then you would like, or an idea that is itching to be brought to life here are some reasons that a recession may be a good time to start a small business.

  • It can be a good time to enter a particular market-Because of the recession; your competitors will be weakened. In fact, they may not only be weakened, but perhaps even closing up and selling out. Everyone will be tightening their belts to some degree. When this happens this may provide the niche, for you to slip into, if a hole is developing in the marketplace.
  • You can judge the long-term viability of your product or service. It is important to realize that just because there may be a market niche for your product or service doesn't mean you can just stick any product in it. Remember that a flawed idea never works in the long-term. You will still need to do extensive market research to find out if your product or service is needed in both good and bad economies, because the economy will eventually recover. However, if your product or service, can flourish when the economy is down, chances are it will do even better, when things look up.
  • Things are cheaper during a recession-Deflation kicks in, and prices often drop during a recession. This shows up in many ways such as: office space is cheaper because it is plentiful. Although starting your small business in a recession out of a home office may be the best idea. You may also be able to find good sales on everything, from office furniture to office supplies. If you need to hire personnel, you may find that you can hire talented people for lower wages.
  • You can often negotiate better terms with your suppliers-It is important to understand that during a recession, credit is tight or virtually non-existent. Suppliers are likely to give a company good terms under these conditions. You may be able to get what you need to get your business up and running, for far less then you could when the economy is better.
  • Just because things may be cheaper, during a recession, there are still certain steps you should take when trying to get your business going. These steps will help you take advantage of the current economy. These include:
  • Remember that you still need to be frugal. If you are starting a business during a recession, you are starting with a very limited budget. Most likely, you don't have access to angel investors or venture capitalists. You may have access to funds from your family or friends since, in a recession, they may not be investing in the stock market or other financial instruments. The bottom line is that you need to be frugal with the funds, you have or obtain. Cut your budget and then cut it again. You will have to track your expenditures carefully.
  • Be creative when purchasing supplies. You can buy what you need at auction. There are usually lots of auctions during recessions. You might even be able to get fleets of vehicles, large machinery or restaurant equipment, or other usually expensive large items at rock bottom prices if you try going to auctions.

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