Recessions happen, and you can successfully prepare for them with a reliable set of leading indicators and an understanding of your own rates-of-change.
Recessions happen, and you can successfully prepare for them with a reliable set of leading indicators and an understanding of your own rates-of-change. There are five positive benefits from a recession. These benefits will propel you to greater success and profitability in the downturn and in the upcoming recovery/growth trend.
Time and focus. The business slows down in a recession. There is less activity and less throughput, and the pressure of keeping up with daily demands eases. This is a perfect time to focus on your business in two important ways:
Cut costs. Recessions provide for the perfect opportunity to condense, consolidate, or eliminate portions of your operations. The cost savings are real, and the increased resources can be later put to use elsewhere. The cuts can occur in products/services, processes that are no longer needed, or places in your businesses that have failed to meet profit expectations while you were busy focusing on other areas of the company.
Prepare for the future. Preparing for the coming recovery requires a studied look at what resources will be needed during it. What factors of production will you need? What are your lacks that will hinder growth when the good times return?
Weak competitors are made even weaker in a recession. They often have neither the agility nor the capital to navigate these turbulent waters, which presents your firm with a great opportunity to gain market share. Furthermore, recessions can provide for good acquisition targets, either vertical or horizontal, enabling you to purchase a firm at a noticeable discount in preparation for your busier future in the upcoming rising trend.
Costs are often lower in a recession, and that includes capital projects and capital equipment. In a low-opportunity market, margin concessions are easier to negotiate from contractors and equipment vendors. That makes a recession the perfect time to save money on a purchase and thereby increase your ROI in the future. Spending money on efficiency gains now will pay rich dividends in the future, especially during the next downturn.
A recession may provide for a real cash savings on real estate, for personal or business benefit. Businesses that lease may find that landlords are willing to negotiate on terms and provisions during this time period, as they grow concerned about a protracted downturn and increased vacancies. It is often necessary and helpful to extend the term of the lease in these negotiations.
Recessions allow you the time to develop and market the new products and services that will sell well in a recovery. While your competitors are worried about hoarding cash, you can take this time to develop new offerings geared toward increasing your profit margin as well as your market share. Many of your competitors will wait until the next recovery to spend the cash on developing and marketing products or services. You can get ahead of them by preparing before the recovery begins.
As you can see, there is opportunity to be had during recessionary periods. However, you will only have the cash and ability to implement these strategies if you know far enough in advance that the recession is coming. It is important to use reliable market forecasts and company forecasts so you can see recessions coming years in advance – and benefit – when your competitors may not.
FAQs
Lower prices — A recession often hits after a long period of sky-high consumer prices. At the onset of a recession, these prices suddenly drop, balancing out previous long inflationary costs. As a result, people on fixed incomes can benefit from new, lower prices, including real estate sales.
What are the positive effects of a recession? ›
Lower prices — A recession often hits after a long period of sky-high consumer prices. At the onset of a recession, these prices suddenly drop, balancing out previous long inflationary costs. As a result, people on fixed incomes can benefit from new, lower prices, including real estate sales.
What is a recession good for? ›
Although the process can be painful for many investors, recessions may be instrumental in bringing the markets back down to earth, setting the stage for an eventual recovery, and renewing the foundations for economic growth.
Who benefits the most from a recession? ›
Historically, the industries considered to be the most defensive and better placed to fare reasonably during recessions are utilities, health care, and consumer staples.
Can you benefit from a recession? ›
Even as share prices decline, you still receive a return on your investment. It is for these reasons that dividend stocks tend to outperform non-dividend stocks during market downturns.
What were the positive effects of the 2008 recession? ›
20 Following the 2008 crisis, lower interest rates, bond-buying by the central bank, quantitative easing (QE), and the rise of the FAANG stocks added market value to global stock markets. Robo-advisors and automated investing tools brought a new demographic of investors to the market.
How can I be positive in a recession? ›
Practice gratitude: Focus on the things you're grateful for, even during tough times. Write down three things you're thankful for each day, and make it a habit to express gratitude to others. Visualize success: Take time each day to visualize yourself successfully overcoming recession-related challenges.
Does any good come from a recession? ›
A recession may provide for a real cash savings on real estate, for personal or business benefit. Businesses that lease may find that landlords are willing to negotiate on terms and provisions during this time period, as they grow concerned about a protracted downturn and increased vacancies.
What is worth money in a recession? ›
Examples of recession-proof assets
Companies with stable cash flow and pricing power, such as Walmart. Industries with stable demand, such as utilities, consumer staples and health care. Commodities like gold.
Is it better to have cash or property in a recession? ›
In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term. Pro tip: Finding a second source of income — outside of your day job — will keep you extra prepared.
So, central bankers can make money more or less expensive, but whichever way they pull the lever, it tends to favour the rich. The diamond-encrusted cherry on this deeply unpalatable cake is that not only do the rich get richer in recessions: in doing so, they actually make recessions worse for everyone else.
What job is recession proof? ›
12 Recession-Proof Jobs in 2024
- Health Care Jobs. It's no surprise that jobs related to the medical profession are number one, right? ...
- Specialized Care Jobs. ...
- Public Safety Jobs. ...
- Public Utility Jobs. ...
- Repair Service Jobs. ...
- Federal Government Jobs. ...
- Education Jobs. ...
- Childcare Jobs.
Financial advisors and accountants
Financial advisors and accountants are recession proof businesses because they offer essential services that individuals and businesses need, regardless of the economic conditions.
What should you not do in a recession? ›
When the economy is in a recession, financial risks increase, including the risk of default, business failure, job losses, and bankruptcy. Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.
Where is your money safest during a recession? ›
Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.
What investments are good in a recession? ›
Here's a look at some investments that may hold up better than others during a recession:
- Traditional defensive sectors.
- Dividend-paying large-cap stocks.
- Government and top-rated corporate bonds.
- Treasury bonds.
- Gold.
- Real estate.
- Cash and cash equivalents.
Because people have less money to spend, demand falls, taking the prices of many goods and services with it.
What happens to a normal good during a recession? ›
Prices can fall—Severe recessions can involve deflation and a reduction in prices, especially of discretionary items and real estate.
Is a recession a good time to buy a house? ›
During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.
What does a recession mean for the average person? ›
Economic expansions create opportunities: new businesses, more jobs, and higher wages. Recessions reduce opportunities: failed businesses, fewer jobs, and lower wages. Recessions normally don't happen every year, but they're not unusual.
