Unless you’ve made a stoic effort over the last eighteen months to avoid being exposed to the news you are sure to have noticed that the banks have managed to get themselves into rather a pickle, creating the credit crunch, which has helped fuel a global slowdown leading us all into a recession. As a result I’ve had (predictably) quite a number of emails asking about recession proof business opportunities. So here’s some thoughts on recession proof businesses.

Firstly it’s worth lets thinking about the effects of recession on small businesses:

• credit is harder to come by;
• when it can be found, there is an increase in the cost of credit;
• as consumer and other businesses feel the effects they will be looking to cut their own costs by either:
  • cutting discretionary spending;
  • buying less/less often;
  • finding better value (paying less);
  • asking for more credit.
• inflation tends to rise, increasing the cost of raw materials;
• there is an increased likelihood of customers defaulting on their credit.

Taking those points into account should help you determine the effect of a recession on a business (or business opportunity). So now lets look at some recession proof business opportunities and their characteristics.

Recession proof business opportunities and ideas

Most recession proof businesses are those that satisfy a basic human need i.e. food and shelter, or what we now consider basic such as fuel for our cars. Equally businesses that sell distress purchases tend to be immune to the effects of a recession (i.e. those selling medicine – we all still get ill even if there is a recession on). Finally a third group of businesses that tends to do well is those providing cheaper (value) alternatives, for example pubs tend to sell less beer in a recession, but supermarkets sell more as we all switch from drinking in the pub, which costs us around £3 per pint, to drinking at home for around £1 per pint.

Those that tend to suffer are the businesses that provide poor value for money, for example premium brands where you’re paying for the brand image or that serve discretionary markets, i.e. luxury foods. In short the recession proof business opportunities are:

• Value products or services – don’t forget even premium products can still be offered in a value way, i.e. allowing customers to rent/pay per use rather than buy.
• Essential or distress purchases.

 Tips on recession proofing your business

But what if you’ve already started, what steps can you take to recession proof your business? I would suggest you look at:

1. Manage your cash – cash is the lifeblood of a business so make sure you’re on top of your cash flow.
2. Diversify your offering – take a look at what you offer your customers and consider how you can offer alternates that are better suited to their financial situation.
3. Review your credit and the credit you offer – start asking for more credit from your suppliers and offering less to your customers, this helps improve your cash position and reduces your risk. Plus it’s easier to negotiate better credit from a position of strength before you need it.
4. Chase ALL outstanding, overdue debtors and make sure you manage your debtors to ensure prompt payment.
5. Review all discretionary spending, cut what you can without compromising the quality of your offering.
6. Review your customers – typically 20% of the customer provide 80% of the revenue of a business. whilst the other 80% of the customers provide less revenue and are often far less profitable (or even not profitable) to serve. Consider firing some of your customers if it helps reduce cost without hurting your profit. Equally work on building your relationships with the best 20% as you may well be able to offer them more or related products or services.
7. Maintain, or better yet increase your marketing – most small businesses cut their marketing in a recession, that’s a huge mistake as marketing is what drives new business to you. Note I said increase your marketing, not your marketing budget – in fact in a recession you can often increase your advertising without increasing your budget as newspapers, magazines and the like are all desperately looking for more business, so take advantage and negotiate hard. The added bonus is that your advertising will often become more effective as there’s less adverts for your competitors.

 The traits of businesses that do well in a recession 

Businesses that do well in a recession are those that are able to minimise their costs, whilst maintaining or even growing their revenue. In order to do this you need to focus on two key areas:

• Cutting costs – lower costs mean higher profit margins and/or the ability to offer lower prices without reducing profit margins.
• Growing market share – the businesses that do well in a recession are those that invest in their marketing.

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