July 29, 2022
When the economy takes a downturn it might seem like the worst time to start a business. You might want to hunker down at your job, do your best work, and hope to avoid any potential layoffs at your company. Although this isn’t a bad strategy, if you have been thinking about starting a business, a recession might actually be a better time than you think to start a business. In fact, you can see the absolute explosion in new business starts since the beginning of the COVID pandemic according to the US Census Business Formation Stats.
So why would a recession be a good time to start a business?
There are 5 key reasons why I think starting a business during a recession is actually good timing.
- Startup costs will likely be lower in a recession
Recessions are deflationary. This is a fancy word that means prices go down during a recession. So the cost to start a business should also go down. In this video I make a case for why you should start a trucking business during a recession:
We have seen prices skyrocketing for assets in the wake of the COVID Pandemic. With the recent official / unofficial announcement of a 2022 recession based on a contracting GDP in both the first and second quarter of 2022, it looks like inflation may be waning and prices could start to come down. The price you pay to start your business can really make a big difference in your potential for a positive return on your investment.
- Businesses go bankrupt during a recession
Another reason that prices go down in a recession is because the weakest businesses will go bankrupt and liquidate their assets including inventory, equipment and real estate. In a forced sale liquidation, prices tend to go down. Not only will there be good deals to pick up startup equipment and inventory from bankrupt businesses, there will also be less competition. This is one reason I think starting an Airbnb business during a recession could be a good idea. The overleveraged Airbnb hosts or any other overleveraged business will go bankrupt in a recession which will free up opportunity for you to soak up that demand.
Since the COVID pandemic business bankruptcies have dropped dramatically, but that could revert to a more normal trend during the 2022 recession.
- It will be easier to find great employees during a recession
The labor market has been incredibly tight the last couple of years. It has been difficult to find employees and even harder to retain great employees. A recession that includes layoffs will open up opportunities for new startups to emerge and hire talent that has been laid off. The layoffs have definitely started in 2022. Layoffs.fyi has a layoff tracker that keeps a running tally of publicly announced layoffs. As of this writing, they have tracked 420 companies with layoffs totaling nearly 60,000 in 2022.
4. There will likely be special startup loan programs during a recession
When a recession takes hold congress tends to react with an alphabet soup of programs to support businesses and individuals. For example, in the wake of the COVID induced downturn the PPP loan program, EIDL loan program, RRP program and SBA 7a and Microlender program all had special incentives for borrowers. One of the best startup lending programs is the SBA Microloan program which I outline in this article on getting a business loan during a recession.
You can find an SBA microlender in your area here.
There are often loan deals that you won’t find during a normal economic time. PPP provided grant funding to businesses that used the funds to retain employees, EIDL provided fixed rate loans with 30 year terms, the SBA 7a and microloan program paid the first 6 months of loan payments for new borrowers that took out a loan during a phase of the COVID pandemic.
5. Some of the greatest businesses of our time were born in a recession
If you need a bit more convincing that a recession is a good time to start a business, consider that some of the greatest businesses of our time were launched in a recession. Looka put together a list of businesses that launched during a recession. The list includes:
- Trader Joe’s
If you are convinced to take the plunge and start your own business, you might want to start by researching which type of business you would like to start, and then crunching some numbers to see which startup opportunities are both interesting and potentially profitable. To help in your research process, we have over 60+ financial projection templates to help you calculate your startup costs, your revenue forecast, operating expenses, and ultimately your potential profit. Some of our most popular categories of startup financial models are:
Restaurant financial forecasts - Includes fine dining, fast casual, coffee shop, donut shop, brewery financial models and more.
SaaS financial models - B2B SaaS, B2C SaaS, and Hardware + SaaS business models.
Ecommerce forecast spreadsheets - Including traditional ecommerce models, subscription box ecommerce models, and retail + ecommerce business structures.
Healthcare business templates - Dental offices, healthcare providers, home healthcare, and nursing home financial models.
Real estate startup financial models - Rental properties, self storage businesses, realtor firms, and Airbnb startup financial models.
Or you can explore our entire library of 60+ pro forma templates to find the perfect business opportunity for you. Even if you just get started as a side hustle while you keep your full time job, a recession can be a great time to launch your business!