Starting a Business During an Economic Downturn

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Table of Contents

Introduction
Opportunities of starting a business during an economic recession
Conclusion
Reference List

Introduction

Starting a business during economic downturn can be a challenge. This is because it is difficult to access the necessary capital from financial institutions during this period (Leahy, 2009, p.41). In addition, economic down turn results into an increment in the level of unemployment thus reducing individuals level of saving. As a result, most people do not prefer venturing into business during economic down turns. In addition, interest rates at the stock market are affected by the economic down turn. This affects the viability of venturing into such economic sectors.

When starting a business during a recession, it is important for the investor to understand the prevailing market conditions. This involves analyzing risks that might face the business in the course of its operation. As a result, the investor is able to develop strategies on how to mitigate or eliminate such risks (Pond, 2009, p.187). For example, the entrepreneur should be concerned on minimizing the cost of production (input) and marketing and maximize output. This means that it is important for the entrepreneur to consider the most effective way of improving operational efficiency. This is because efficiency in production promotes business growth and in particular during economic downturn. In addition, to survive during an economic recession, the entrepreneur should maintain proper business accounts.

Opportunities of starting a business during an economic recession

Some investors prefer starting businesses during economic recession due to numerous opportunities available in the market during economic downturns. One of the main opportunities available during this period is low competition. This arises from the fact that that most investors concentrate on preventing their businesses from collapsing. As a result such investors are unwilling to invest in the new markets or to venture in new products (Business link, n.d, para 8). The result is that the intensity of competition is usually low during an economic recession. By starting a business during this period, there is a high probability of the entity expanding rapidly.

Some economic sectors are not adversely affected by economic down turns. Most of these businesses are those that deal with inexpensive luxuries (Business link, n.d, para 5). For example, during economic recession, consumers continue purchasing some luxury products such as radios and television sets to satisfy their wants. By venturing into these sectors, an entrepreneur can make a profit. In addition, firms which deal with products targeted at consumers whose age is above fifty years are not adversely affected by economic downturn (Business link, n.d, para 9). This results from the fact that these customers have a relatively high equity in their savings and investments. During an economic downturn, the aggregate demand of most commodities declines, but demand for commodities consumed by elderly people increases because their income is not affected. Therefore, when starting a business during a recession an entrepreneur should consider age in targeting its customers.

Other businesses that flourish during an economic recession are those that market essential products such as food, shelter and clothing. In addition, businesses that offer certain services such as transportation, barbering, health services and salons are not adversely affected. For example, people need food, clothing and shelter because they are essential for human survival. The aggregate demand for these products does not change and hence the profit level does not change.

Business expansion is motivated by the need to increase profit level. Businesses that provide transportation services to the public and other businesses are not affected by economic recession (Business link, n.d, para, 7). This means that demand for transportation is not affected by economic recession. Firms in this sector can attain high profits which in turn promotes business growth and expansion.

Offering health services is also a potential business opportunity during economic recession. This arises from the fact that health services are essential for human survival and hence their aggregate demand is not affected by economic recession. In addition, beauty industry is not affected by an economic downturn making it to be a viable investment sector. Another services industry that is not affected by economic recession is the consultancy industry. The consultancy firms may either be financial or psychological. For example, due to financial constraints experienced during economic down turn, a large number of consumers seek financial information on the best consumption strategies. Some financial consultancy firms started during recession have undergone rapid growth (Keto & Keto, 2008, p.195). Another example of an industry which witnesses a large number of new investors is the food industry. For example, McDonald’s Company was established during an economic recession. Other companies that have succeeded and were started during a recession are Apple, Revlon (a beauty salon) and CNN (a television station).

Conclusion

Most investors have difficulties starting business during recession due to the challenges involved. One of the main challenges is capital. Due to the businesses opportunities available in the market during an economic recession, some entrepreneurs prefer starting businesses during this period. Some of the business opportunities presented in the market during economic recession relates to firms which provide financial consultancy to public and private institutions, food products, transport services and luxurious products. Most of the successful business that started during economic downturn provided essential consumer products.

Reference List

Business link. n.d. Starting a business when economic conditions are tough. Web.

Kato, S & Keto. D.2008. Don’t get caught with your skirt down: a practical girl’s recession guide. Toronto: Simon and Schechter.

Leahy, J. 2009. Survive and prosper: grow your business s in today’s economy. New York: Author House.

Pond, J. 2009. Safe money in tough times: everything you need to survive the financial crisis. New York: McGraw hill professional.

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Starting a Business During an Economic Downturn

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