How likely is a recession this year, and how can you protect your business?
There's been a lot of talk about a potential recession in 2019. The topic has been tweeted to death, with opinions on both sides weighing in.
Recession in 2019? What the optimists and pessimists say
One of the key indicators of a recession is business sentiment. In other words, are business owners feeling optimistic or pessimistic?
The Wells Fargo/Gallup Small Business Index showed a decrease in small businesses' confidence from 129 last quarter to 106 now, although the numbers remain positive. The National Federation of Independent Businesses' Small Business Optimism Index remains at high levels, way above its Great Recession levels, but has declined from 108 to 101 (100 being positive).
It's easy to get caught up in the negativity surrounding these results. Instead of assuming a recession from this information, though, it's preferable to interpret the data in context of recent events. As some have posited, the parallel decline in those two indices may not indicate an economic downturn or growing uncertainty, but rather a natural comedown from the exuberant optimism that followed the departure of the Obama administration.
The Trump administration entered the White House with much fanfare for small businesses – the promise of tax declines, eased regulations and general support for small business growth. The result was excessive small business optimism.
So what we're seeing now could be reality setting in. Despite business owners' optimism in light of government policies, the fact remains that running a small business is no easy feat.
The important takeaway is that, despite its decline, optimism is still at historically high levels. So, overall, we're still in good shape for now.
However, since none of us have a crystal ball that can precisely predict the future, here's some advice to help you play it safe.
How to recession-proof your small business
Should a recession actually happen in 2019, there are some steps you can take to make your business less susceptible. It's like a seat belt on a plane – a safeguard in case of an unlikely event.
1. Hire conservatively.
Recession or no, now might not be the time to expand your team, as wages are expected to rise in 2019. Rather, maximize the capacity of your existing employees (without burning them out, of course). If you do need to fill positions, look to hire freelancers or contract workers.
2. Apply for working capital.
Never forget the No. 1 rule of business financing: The best time to get business funding is when you don't need the money. A line of credit is probably your best option, as you can draw on the funds as needed and only pay interest when you actually get the money in your account.
3. Hold off on large investments.
Be conservative in your business investments. Don't hold your business back, as you definitely want to grow, but make wise choices about where to spend your money. Focus on areas that will help your business weather any downturn, instead of splurging on luxuries.
Good business ideas for recession time
Thinking of starting a business in 2019? These are some types of businesses that are conducive to a slow economy and can even thrive during a recession.
A virtual assistant is a remote freelancer or contractor who can run almost any aspect of a business. Virtual assistants can offer general administration services or specialties, such as marketing, executive assistant work, bookkeeping and sales. Demand for these services would increase during a recession as businesses cut back on full-time staff in favor of flexible, hourly workers.
No matter the economic environment, parents will always need child care while they're at work. Even if you're not a "mompreneur," running a day care is a particularly good business idea.
If there happens to be a recession, people generally won't be thinking about buying cars and would rather repair the ones they already own. There will always be a need for this service.
During a recession, every business gets hit, including banks. Like any other business, banks look to scale down where they can, with business loans being an easy target. This cutback on funding from banks and traditional lenders could very well lead the majority of businesses to seek business loans through online lenders. This is where fintech shines, as these players will be able and prepared to provide proper solutions for businesses left in the lurch.