Big business in a down economy

It sounds counterintuitive: An economic downturn can actually be an excellent time to start a business. But it’s true. The psychology of fear that recessions cause as well as declining competition can even give you a chance you may not otherwise have. But assessing the current landscape and choosing the right business is even more essential.

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What is a recession?

Let’s level-set: A recession is a period of economic decline that can last anywhere from a couple of months to years. People spend less money, and because of that, there’s less manufacturing and trade of goods.

 The important thing to know is that when recessions do happen, people stop spending money. Human psychology takes hold, and fear sets in, which can make things even worse. And even the best-performing businesses in a recession will feel the effects.

How does a recession affect businesses?

A recession doesn’t just affect the businesses you’d expect, like nonessential goods. It can affect the energy and transportation industries, as well as service-oriented businesses like sales – because if no one has money to buy what you’re selling, you’re not going to make very many sales.

 When cash flow stops, businesses need to rely on cash reserves, sell off stock, issue bonds or use their capital assets as collateral to secure loans. Yet loans also become harder to secure, and stock prices may decline. If businesses can’t make up for lost profits, then product changes, hiring freezes, furloughs and employee layoffs may be in their future. A recession-proof business, however, will be prepared – by paying off debt, being ready to pivot or avoiding deadly sins like giving in to fear – so they can make it through.

Is there such a thing as a recession-proof business?

Absolutely – some businesses have a better chance of surviving a recession than others. Those that are run with purpose, vision and great leadership will be in a better place to survive, as will those that are financially prepared. There are also certain industries that may do better than others during an economic winter.

 This is where the concept of elasticity of demand comes into play. Businesses with elastic demand for their products – that is, demand goes down when the price goes up – are more vulnerable to recession. Recession-proof businesses usually produce inelastic goods, where demand stays the same even if the price goes up.

What businesses do well in a recession?

Due to elasticity of demand, industries not impacted by recession are usually in essential services, like health care, senior services, grocery stores and maintenance such as plumbing and electrical. In our technology-driven world, streaming services, video games, computer equipment and cybersecurity and IT support are also among the best businesses in a down economy.

During a recession, the first thing people cut back on is nonessential goods. Businesses like restaurants, fashion retailers and other consumer goods are likely to take a hit. Although it is possible to enter these industries during tough times, if you’re wondering which industry is recession proof, you’re more risk averse than you think. No business idea is guaranteed, but you may be wise to avoid these industries and choose one that is almost certain to thrive.

12 businesses that thrive in recession

So what are the best-performing businesses in a recession? You have plenty of options within the industries above – as well as a few that may surprise you.

1. Groceries

Not surprisingly, grocery stores are one of the top industries not impacted by recession. People always need to eat, and during a recession, they typically also cut back on eating out in restaurants and ordering takeout. That makes grocery sales skyrocket even more.

2. Health care

Like groceries, people need health care to live. That demand doesn’t decline when the economy does. Healthcare is always inelastic, meaning the demand for it doesn’t change based on its price. Demand for healthcare may even rise during a recession as people seek help with mental health.

3. Candy

Humans are driven to seek pleasure and avoid pain – no matter the economy – so it isn’t surprising that candy tends to be a recession-proof business. Snickers and Three Musketeers were both introduced during the Great Depression. And during the 2008 recession, Cadbury reported record earnings.

4. Beer, wine and liquor

Alcohol sales are another “guilty pleasure” industry that tends to be profitable during recessions. When larger purchases like electronics, vacations and new cars are out of reach, people tend to console themselves with alcohol. It isn’t a healthy habit, but it is one of the best-performing businesses in a recession.

5. Discount retailers

While fashion, jewelry and other nonessential goods are generally not recession-proof businesses, there’s an exception for discounters. Dollar Tree, Walmart and Ross Stores had some of the highest-returning stock during the 2008 recession.

6. Children’s goods

Baby products are almost entirely recession-proof: Parents can’t exactly pinch pennies on diapers, formula and clothes for a fast-growing baby. Even kids’ clothes and toys are recession-resistant. Parents will cut back in other areas so they can still spoil their kids, at least a little bit.

7. Pet industry

America loves its pets. If a beloved cat or dog falls ill, we’re not likely to scrimp on veterinary care. It doesn’t stop there. Americans are still estimated to spend $1.5 billion more on pet food and treats in 2020 than they did in 2019. Pets are big business, and those businesses are recession-proof.

8. Financial advisors and accountants

When we enter a bear market, everyone starts worrying about their financial future. Individuals want to ensure their investments are stable or even invest in new opportunities. Businesses rely on advice from their accountants to help them survive tough times. These are valuable skills in any economy, but especially a down one.

9. Cybersecurity and tech support

The current recession has driven activity online – we’re shopping, working, communicating and streaming more online than ever before. Recession-proof businesses always adapt to current trends, and those with the skills to stop cybercriminals and help newly remote office workers are discovering opportunities.

10. Repairs

Even when the economy is slow, things are going to break. The recession won’t slow rain on the roof, water in the pipes and the need for auto maintenance. That’s why plumbers, electricians, mechanics, roofers and all-around handymen are likely to do well in a recession.

11. Debt collection

It’s a sad truth of recessions: When the economy tanks, many people can’t pay their bills. They get behind on car payments, medical bills and the electric bill. Debt collection may not be your passion, but it is certainly a recession-proof business.

12. Freight operations

Businesses that thrive in recession tend to have products or services that people need no matter what or that make them happy in hard times. Freight and logistics delivers both the necessities and the comforts, making it consistently recession-proof.

It’s far from impossible to start a business during a recession. But you’ll need to go beyond asking which industry is recession proof – you must ask what else you can do to be prepared, mentally, emotionally and financially. Only then will you succeed, no matter the economy.

Ready to build a recession-proof business?

Whether you want to start a business or already own one, you can learn actionable strategies for recession-proofing at Business Mastery.