As the global recession nears the UK and global economies, starting a new business might seem that last thing on anyone’s mind. Financial and commercial markets are collapsing, pensions and savings have seen their values significantly reduced and house prices, the ever-lasting barometer of well-being are plunging.
One factor which might result is what some may consider to be a more than suicidal attempt at starting a business in a recession is that as forecasted redundancies begin, some people will face little alternative but to go it alone.
Perhaps after years of learning and mastering a particular trade, the thoughts of retraining to earn less money are hardly be appealing. The option to take those skills and apply them for ones own benefit may be compelling.
Economic Slow Downs
A recession after all is a slow down in the levels of gross domestic product achieved in two straight quarters. In the current economic climate this is likely to manifest itself as a less than one percentage point drop in manufacturing and service output.
The essence to note is that a reduction in GDP is not a stop; a complete cessation of trade of buying by small businesses or their consumers and therefore commercial activities still continue, albeit at a lower pace.
Not meaning to belittle the affects of a recession or its impact on families and individuals, the intention is to merely state what a downturn is and to provide some context and relative analysis which is often absent from the exaggerated media headlines.
Recession Proof Businesses
There are probably no recession proof businesses unless one has the capital and contacts to start-up a company offering pharmaceutical products to the National Health Service. It is reasonably safe to say that all businesses will to varying degrees feel the affects of the economic downturn.
What is largely untrue about the current and likely future commercial environment is that opportunity will cease to be available and that shrewd and capable people will not be able to not only launch a new business but will fail to make a success of it.
Some obvious means of coping with a recession is to reduce business fixed costs and to continually re-evaluate all discretionary expenditure. Trading online and starting a internet business is generally cheaper than leasing a fleet of high street shops.
Similarly, working from home can act as a means of lowering overhead expenditure in contract to a city office which requires a high rental premium and ties the business in to a minimum contract.
Many new businesses will have to take the “what if” analysis to the maximum levels as the unpredictability of a recession both in terms of its length and severity are currently unknown factors.
Limited exposure to bad debts by issuing pro forma invoices and requesting sales receipts before goods are shipped is a sensible solution. Subscribing to the VAT cash accounting scheme which often eases the burdens of large Revenue and Customs liabilities where customers have not paid can also be useful.
Redundancy
Many would advise those who are made redundant which include a financial package to consider carefully their options before investing in a new business. It is very easy to become overly secure when a large amount of money in hand and no immediate debts.
It would not be imprudent to take a very short term view of investment opportunities and view each pound invested as needing to recoup at least an equivalent amount very quickly.
Spending redundancy money on a longer term projects can result in a cash flow crisis for the small business and personally for the owner as household and trading bills become payable.
Having a philosophy of low risk, steady as you go, putting portions of the total towards a business idea, will provide proof or otherwise that the plan is feasible without using every available resource.
The buzz word which must go hand in hand with starting a business in a recession is that of caution. Careful planning, flexibility and an approach which does not overreach will see the business through the economic downturn and steer it healthily towards the forthcoming period of growth, whenever they should arrive.