The pros and cons of starting up in a downturn

Q: "I’ve heard that a recession is a great time to start a business. But what are the advantages of starting up in a downturn?"

A: There are always challenges when starting a new business, and doing so in the middle of a recession is no different. However, there are a number of reasons why this could be a good time to take the plunge and start working for yourself:

1) Larger businesses usually carry big overheads, whereas a start-up has few, if any, fixed costs. Because you have much lower overheads, you are likely to be able to pass these savings on to your customers, beating more established businesses on price.

As recession bites and cost becomes a more important consideration in everyone’s buying decision, you can win lots of business quickly.

2) You are likely to make more focussed decisions on whether or not you really need to spend money in this kind of environment. When the economy is strong, it can be too easy to spend money that you don’t really need to. Challenging every purchase and outgoing means you avoid over-spending and improve profitability.

This also gets you into good habits. Even after the recession has ended, your business won’t waste money.

3) During a recession, you are likely to be able to negotiate some really good deals on anything you need – goods, services, or equipment – to run your business.

4) A lot of larger, more established businesses are going bust. This means that people can no longer use their usual contacts and are actively out there looking for new suppliers. Provided that you ensure you have a good profile in the marketplace, you can spend less time marketing and let potential customers come and find you instead.

As long as you have a great idea or product, and take advice from professionals along the way (to make sure you comply with all the compliance legislation that will be thrown at you), there is no reason why your business can’t be a success through, and beyond, the recession.

Martin Dunne is a partner at Sayers Butterworth LLP. He previously worked in the entrepreneurial services division of Ernst & Young, and has over 15 years of experience working with fast-growing, entrepreneurial businesses. He provides practical and commercial advice to clients ranging from start-up stage to AIM-listers in a variety of sectors including retail, property, manufacturing, technology and media. Related articles"How will the record-low base rate affect my business?” "How do I maximise the cash flow of my business?”"Do I have to pass on the VAT cut to my customers?"

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