A recession is a period of economic decline that results in a contraction in Gross Domestic Product (GDP) and an increase in the unemployment rate. Such a decline in economic activity leads to a negative impact on all sorts of large and small businesses mainly due to a significant decrease in demand, a shortage of credit, and the fear of uncertainty. To continue to stimulate profit, companies have to make multiple changes in the business strategies including the elimination of investment on new products or services, reduction in the expenditure, and the implementation of a hiring freeze to become recession-proof businesses.
During a recession, small businesses will face challenges if they do not have access to equity markets or aid from the government. Meanwhile, large enterprises will have to cut back on research and development, put a halt on new equipment purchases, and certainly prevents the launch of new products or services. However, there are a few positive aspects of an economic decline. Due to an increase in the unemployment rate, the current employees’ productivity will surge. Besides, it can help you surpass your competitors and if you successfully do so, you’ll have a chance to stand as a strong market leader at the end of the recession. Finally, the disruption in the economy will allow you to borrow loans with lower interest rates thereby, making your repayments lesser than normal circumstances.
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What Sort of Businesses Thrive in Recession
During the Great Recession that took place in 2009, the global economy faced a meltdown which led to the shutting down of businesses, employee layoffs, and an overall financial crisis. Fast forward to 2020, we are on the verge of facing another global recession due to pandemic that has surfaced all over the world since the beginning of the year. Even though the uncertainty of the whole situation is frightening, there are certain industries that can thrive through a recession with tailored objectives specified toward the business or company itself. A global recession does not necessitate the downfall of every single business out there, even though it might seem so.
Food and Beverage
This is an industry that will proclaim its relevance irrespective of what the economy is going through. People will eat, opting for either a healthy option to get through the day or a tasty cheat meal to overcome the time of despair. This allows food and beverage industries to continue their service and sustain their businesses even through such rough times.
If we narrow down our focus, the candy industry will possibly see substantial growth in revenue and profit during a global crisis. This is because people love to overcome a financial crisis by devouring sugar thereby, making the candy industry a potential business option that will thrive through an economic recession. According to the New York Times, the multinational confectionery brand Cadbury had an upsurge of profit by 30 percent during the Great Recession in 2008. Besides, the Swiss company Nestlé enjoyed a 10.9% profit during the same period.
During an economic crisis, people are more likely to cook at home than go out for meals, which make grocery stores a viable investment. Moreover, it’s not just food that is available in grocery stores. People will purchase other basic necessities to get through the tough months, such as hygiene products, household items, and other non-food products.
Furthermore, people may not go for expensive drinks, but they will not cut down on their alcohol budget if that’s what they fancy. If truth be told, the National Council on Alcoholism and Drug Dependence (NCADD) has reported an increase in alcohol purchase during recessions, especially affordable wine and beer.
If there’s one industry that’s recession-proof, it’s the healthcare services industry. Irrespective of the financial condition of a country or the globe, people will get sick and only healthcare services can meet the requirements of the sick-stricken people at the time of need. More so, if we consider the current pandemic that is causing a catastrophe all over the world, the frontline healthcare workers are the ones everyone is depending on. Everybody needs healthcare to survive and you’ll most likely spend on it with your savings even if your income is cut short. That’s just the reality.
However, depending on the healthcare company the impact of recession might differ. Healthcare companies that are already suffering from less cash flow and a substantial amount of debt will not be able to pull through a recession. That being said, healthcare services that are aligned to the basic support systems such as hospitals and clinics are more viable in comparison to biotech setups that are still on the initial stage of the industry.
One of the lowest to zero impact businesses during a recession are the ones that manufacture baby products. Babies are a part of a natural life cycle that makes any product that is essential for their well-being a necessity. Therefore, businesses and stores catered towards the needs of babies and toddlers will thrive even during the worst economic downturns.
Baby necessities range from a crib, waterproof mattress, sheets and baby proofing gear to diapers, formula feeding gear, breastfeeding gear, and baby clothing. Stores that are solely focused on selling products tailored towards parents as the target market will without a doubt thrive a recession of any measure.
Technology and IT Services
A technologically developing world calls for advanced services. Efficient technology has made such a difference in our day to day lives that we are increasingly becoming dependent on our electronic devices to do the simplest functions. According to the Wall Street Journal, the fastest growing zone in the US during the Great Recession was the IT industry. The functioning of our daily lives, our communication, and our businesses depend on technological services. This industry is bound to thrive and grow through recession whether national or global.
If we consider the current COVID-19 pandemic, being stuck at home has made people purchase electronic and gaming devices that they didn’t even have time to use before the lockdown was established. People are considering gaming to be one of the most reliable forms of entertainment while they maintain social distancing. The Japanese multinational electronics company, Nintendo has sold 5 million copies of the popular game “Animal Crossing: New Horizons” in March 2020 alone, creating a new record of the most units of a digital game being sold in a month.
The cleaning service industry is one of the sectors which you think has low chances of thriving in a recession. But that’s certainly not true. Even during hard times, cleaning is still a necessity. As purchasing power decreases during an economic downturn, people are less likely to purchase furniture and carpets. Instead, they’ll pay to get them cleaned until they can think of buying them again after the recession is over and economic recovery approaches. Moreover, cleaning services can help to keep the tiles, upholstery, rugs, and grouts in your home spotless. Most cleaning services also come with water damage control and restoration.
During a recession when businesses are still impacted due to various factors, they still need to sell products to earn revenue. The last thing you’d want customers to be disappointed with is an unclean store or building leading to losing the little business that you have. That’s how cleaning services can still thrive through even a major economic crisis.
Furthermore, affluent customers who are most likely going to survive a recession will avail cleaning services such as Simply Maid or other similar services to keep their homes squeaky clean.
A piece of great news for repair industries is that irrespective of what economic crisis the world suffers through, people will still have broken cars, leaking roofs, and shattered windows, to name a few. Things don’t just stop malfunctioning just because the economy is suffering a crisis. This is why maintenance and repair industries will thrive in a recession. Moreover, when people are trying to cut down on expenditure they are less likely to replace a broken good with a new one and more likely to avail of repair service.
What are the Recession-Proof businesses in 2020
The economy is bound to be triggered by the Coronavirus pandemic in 2020. And this calls for innovative business ideas that can thrive through a global recession that the world is about to face. To survive a financial crisis, it is pertinent that we find opportunities that are relevant to current times.
Recession-Proof Businesses: Delivery Services
Delivery services in multiple industries can thrive through a global recession during a pandemic when people are bound to be stuck indoors. Restaurant delivery services can boost during times when social distancing is mandatory. Now that dine-in options are closed, people are opting for the next best alternative, food delivery. Restaurants can partner up with food delivery companies such as UberEats, Postmates, or DoorDash to provide services to customers in the comfort of their homes. For restaurant businesses to thrive, food delivery is their only option which is why delivery companies can benefit to a great extent even when the world is falling apart.
Just like restaurants, grocery shops could also provide delivery services for customers who want to maintain social distancing at all costs. Grocery stores fall under essential business and will remain open indefinitely even during a lockdown. Therefore, people who want to avoid human contact can utilize the delivery service to get all the necessary goods at their doorstep.
Recession-Proof Businesses: Retail Consignment
Customers are always in search of bargain especially when a global financial crisis takes place. This makes retail consignment one of a great recession-proof businesses that will thrive during a recession. High-quality items can be sold on discounted prices while keeping a low-profit margin. After all, some revenue is better than no revenue. During an economic crisis, people will most likely not spend money on purchasing new clothes and shoes even though they are staple items. However, they would still look for options to thrift. This is how businesses that offer consignment sales can thrive during trying times. Given the circumstances, the services should be carried with the help of consignment apps where customers can select and order items online and the companies can responsibly deliver them.
Recession-Proof Businesses: Tax Prep and Bookkeeping
To maintain a smooth flow of expenditure and savings, managing finances are always important for businesses and individuals, which for obvious reasons become much more crucial during a recession. Keeping a tab on straight numbers is not an easy task for everyone, which is why individuals and businesses that lack the knowledge and know-how on how to keep a check on their finances can avail tax prep and bookkeeping services. This will not only give them confidence but it will also ensure their peace of mind.
Recession-Proof Businesses: Online Event Planning
An approach to the global recession in 2020 differs a lot from the other major economic disasters. Weddings, corporate gatherings, and parties are all put to a halt due to the pandemic that has taken over the world, and that is clearly a huge drawback to event planning industries. However, important occasions in life should be planned in advance and these event planning companies can cooperate with customers to organize for events that will take place in the future. Meticulous service can be provided in exchange for a booking payment. This way, both the planner and the customer can benefit practically.
How Can You Make Your Business Recession-Proof Businesses
During a financial crisis, all businesses suffer due to decreased sales and diminished customer confidence, but small businesses are the most endangered. Unlike large companies, they do not have sufficient resources to get through a recession. In such situations, it’s important to not panic and take the necessary steps to survive or even thrive during the worst economic downturns and become recession-proof businesses. The immediate mistakes that companies do at the time of crisis include cutting down on core expenditure, advertising and marketing, and engaging in layoffs. That’s exactly what should be avoided to prevent failure, and implementing certain practices can help businesses to flourish in tough times and become recession-proof businesses.
Secure your Cash Flow
Continuous cash flow is essential for the business skeletal system. Even during an economic downturn it’s important to ensure that your company’s income surpasses the expenditure. That being said, it’s not an easy task to do when a company is at a vulnerable stage like this. The initial approach should be trimming on unnecessary expenses that the business can do without. Moreover, you must maximize your cash position by postponing expenditure and focusing solely on cash inflow. An effective measure that can be taken is managing customer credit risk, according to which you must refrain from providing trade credit to high-risk customers and focus on the ones who will strategically be beneficial to your business.
Try to look for ways to reduce your inventory costs while making sure you’re not deducting any element from that list that would hamper the quality of your products or services. You could limit purchasing too much of particular items or source them from somewhere else at a lower price. Moreover, you could apply the drop-shipping method according to which you can provide the transfer details of your customers directly to your manufacturer or a wholesaler. Your business could financially benefit from it especially during an economic recession.
Do Not Cut the Marketing Budget
Businesses need to focus on marketing during a recession because, at the end of the day, that’s what will ensure more business. Cutting down on the marketing budget will hamper your business because customers are always looking for alternatives and you can utilize the situation to hand it to them with effective advertising. This will be a chance to aggressively advertise your products and services while your competitors pull back from doing so. Saving on advertising expenditure during a recession will only create a greater loss for your business, and by no means should that be practiced when your products and services need the maximum boost.
Focus on Current Customers
Your current customers are your biggest asset who should be focused on at all costs especially when your business could benefit from them the most. Loyal customers will ensure that your business is still running by giving you more sales opportunities that new customers most likely won’t. To ensure recession-proof businesses you must gain your potential profit from the established customer base. To secure your customers’ satisfaction you should provide excellent customer service and meet their needs by identifying them. It is crucial to practice it continuously if you want to make your business resistant to recession.
It is important to understand that each recession differs from another which makes it crucial for you to comprehend that recession-proof businesses will thrive better than others during different periods of recession. The recession-proof businesses mentioned in this article will thrive in more or else any period of recession given that certain practices are followed. That being said, there are other areas that are good grounds for investments such as utilities and freight and logistics. Irrespective of the economic situation people always require water and heat, and goods always need to be moved to places. However, you must also keep in mind that not all recession-proof businesses that thrive during a recession will continue to do so after it’s over. Therefore, you must be ready to alter your business strategies based on external economic factors.