The Best Time to Start Up a Business is During a Recession

When the economy is booming, businesses everywhere seem to be doing well. You read the papers which scream that the growth rate for the last quarter was about the highest over the last few quarters. People are buying goods and services as if there is no tomorrow. Shop and office vacancies are at their lowest you have seen for a long time. If you are lucky to be able to get a vacant lot, you find that the asking rent is at their peak. You read that the unemployment rate is the lowest for several years. Therefore workers are difficult to find and employ. If your business is fortunate enough to be able to find them, the wages that you have to pay are about the highest for a while. It seems that every entrepreneur wants to start up a business to take advantage of the booming economy. As a result, getting a loan becomes difficult not to mention the much higher interest rate that financial institutions want to charge.

Is the time when the economy is doing well a good time to start up a business? To many would be entrepreneurs, the answers seems to be in the affirmative. It is similar to the question on whether it is a good time to invest in the stock market when it is making new highs. The answer of course depends on the stage of the economy or the stage of the bull market in the case of stocks. If it is in the initial stage of recovery from a downturn, then it may be a good time to invest in a business or the stock market. However if it is approaching the peak of the business cycle, then the only direction it can go from here is South.

After the boom comes the inevitable bust. When it happens, you get a downturn. If the downturn results in negative GDP growth for 2 successive quarters or more, then it becomes a recession. Some of you may differ in your opinions. You may say that the economic boom may last for a much longer period. Others may argue that there may be a short breather before the economy picks up again. All these are possible. However the longer the good times last, the higher the likelihood of a downturn or a recession. When shop and office vacancies, and unemployment rate are at their lowest, and wages and interest rates are at their highest for a while, the sign are clear.

During a recession, the opposite of a booming economy takes place. Some businesses all over the country may in the process of closing down if not already. People are buying fewer goods and services and only if absolutely necessary. As a consequence, shop and office vacancies are at their highest for a while, In other words, it is a renters’ market. You pick the location you desire and demand that it be leased to you at the low rent that you want. Given the state of the market, you should not be surprised to find many landlords acceding to your demands. You put up a sign to say that you are hiring and a long queue of unemployed persons start to form. To your surprise, these individuals are willing to take up employment at the low wage that you can afford and are offering. Your visit to a few financial institutions results in as many offers of loans. Besides that, the interest rate that they want to charge you is so low that you wonder how they are making any money out of it.

Most of  you would agree that investing in a start up during a recession would be the most cost effective. Some of you may be skeptical though. You may be asking where the demand for the goods and services your start up offers would be coming from. This is an entirely rational question as in a recession, demand for goods and services drops drastically. However the low cost base that you establish the business on should be able to tide you through this low demand period. On the other hand, competitors who had benefited from the earlier booming economy would be hard pressed by their high cost base to compete with you. Therefore there is a good chance of them of losing market share to your start up or even folding up during this period. Its a matter of time when the recession ends and the economy reverts back to its growth path. By that time, your start up would be ready to pick the fruits of your timely investment.

 

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