Though the world is constantly changing, the economy always follows the same cycle of growth and recession. A recession can be a difficult time for business, but it also creates valuable opportunities for investors.
There are many benefits to buying a business in a recession. As business owners are keen to sell, it’s a buyer’s market. You’ll face less competition and can negotiate a lower purchase price. Invest in a recession-proof business and you could enjoy a substantial profit when you eventually sell.
While some businesses struggle during an economic downturn, others thrive. In this guide, we’ll discuss which industries fare best during a recession and why it’s a good time to start a new venture.
How Does a Recession Affect a Business?
During a recession, business owners face many challenges as the country experiences a drop in economic activity. Widespread reductions in spending lead to a decline in profits, and businesses battle to stay afloat. It’s a vicious cycle:
- Consumers can’t afford to spend as much money, so sales fall
- Companies are forced to scale down their operations, resulting in redundancies
- The unemployment rate rises, leading to further financial hardship
Many businesses make a loss during an economic downturn – some even face bankruptcy. However, not all companies suffer when recession hits. How recession affects a business can vary depending on the industry.
Businesses offering essential services and products, such as pharmaceuticals, do well during hard times. Consumers have less expendable income, so companies aimed at helping people save money enjoy increased profits too.
Is a Recession a Good Time to Buy a Business?
The idea of buying a business in a recession may seem risky. However, some of the world’s largest corporations gained success during times of economic hardship.
Airbnb, for example, was founded during the Great Recession of 2007-2009. It quickly grew into a booming worldwide marketplace for holiday rentals. Why? Because consumers were seeking ways to spend less without sacrificing fun. The company helped people save money on holiday accommodation and earn extra income by hosting guests.
If you have a thorough understanding of your target market, buying a business during a recession can be a great opportunity. Any business has the potential to thrive with a solid plan in place.
What Are the Benefits of Buying a Business in a Recession?
While you could start your own business, purchasing one that already exists is both easier and safer. An existing business will already have customers, a cash flow and an established place in the market. You won’t need to spend time and money building a brand from scratch.
There are many advantages to buying a business in a recession:
- More opportunities. Many business owners, hesitant about the future, will be looking to sell. This will give you a wider range of acquisition opportunities in practically any industry.
- Less competition. Fewer investors will be looking to buy at this time, meaning it will be easier to secure a deal – especially if you look into off-market businesses.
- Lower purchase prices. Because demand is lower than supply during a recession, even the most reputable companies will be more affordable.
- Easier to hire staff. A high unemployment rate means you’ll have better luck finding skilled and qualified employees.
- Cheaper assets. With many businesses folding and selling their assets, everything from commercial premises to equipment is cheaper during a recession.
Buying a business always comes with some risk, especially in times of economic downturn. However, if you offer a vital service and build up a loyal following, you could sell your business for a tidy profit once the economy recovers.
What Are the Best Recession-Proof Businesses to Buy?
With the UK potentially facing a post-pandemic recession, it’s important to think carefully before investing in a business. Some companies are more resilient to economic downturns than others.
As living costs rise and wages stagnate, people are quick to cut back on non-essentials. Industries such as fashion, beauty, leisure and hospitality tend to struggle. By contrast, the best businesses for a recession include:
- Grocery delivery services
- Home and car repair companies
- Healthcare businesses
- Transport companies
- Discount retailers
The best business to start during a recession (or buy) is one that offers the public something they need, even when money is tight.
How to Buy a Business During a Recession
When buying a business during a recession, you must do your due diligence. Assess market trends and perform in-depth financial analyses to determine if the company is a good investment. This will help you avoid unexpected problems down the line.
If you’re not sure where to start, speak to a professional business broker. Brokers are highly experienced in business acquisitions and will be able to provide expert advice. They’ll conduct research and background checks into the company and ensure the purchase goes smoothly.
Always choose a buy-side business broker (such as Chelsea Corporate). This means they work for the buyer, so it’s in their best interest to find you a good deal. Banks are less likely to approve loans during a recession, so you’ll want to secure a fair price.
Contact Chelsea Corporate: Business Acquisition Experts
If you’re thinking about buying a business, Chelsea Corporate can help. Our experienced brokers specialise in matching buyers with profitable businesses for sale. Through us, you’ll have access to an exclusive database of off-market businesses that you won’t find anywhere else.
Whatever your industry, we’ll find you the perfect acquisition opportunity. We’ll handle every step of the process, from due diligence to closing. If you’re overseas and looking to buy a business (UK-based), we can even facilitate the acquisition fully remotely.