December 5, 2022

Small Business Advice

Good Things in a Recession

Jerry Osteryoung | 4/7/2008

There is an old joke among economists that states: A recession is when your neighbor loses his job. A depression is when you lose your job.
— Anonymous

With the economy slowing down and probably moving into a recession (GNP falling for two consecutive quarters), you must take caution as sales for most firms are going to be reduced. However, a number of positive opportunities that were not available before will be coming out of this recession as well.

The number one positive by-product of this recession is that loan rates are falling dramatically. Now is the time to look into refinancing all of your assets. Whether you have short-term or long-term debt, now is the time to secure a much lower rate. Look at all your assets, from car financing to building mortgages, and consider refinancing them. Just a 2% decline in rates on a 15-year loan of $100,000 will save you about $100 a month or $18,000 over the entire loan period.

Another thing to consider in this economy is buying a building for your business. With both property values and interest rates falling, the real estate market for commercial property is getting softer. It is almost as if this is the perfect storm (in a good way) to buy commercial property. We just may not see this type of buying opportunity again for many decades. Additionally, you may be able to afford a much larger building now that these two elements are being driven down.

Many firms are too heavily leveraged with debt to survive the falling sales of a recession. This is another perfect opportunity to step up and acquire some of these firms to gain market share at a very reasonable price. There will also be more business bankruptcies, which presents yet another chance to acquire some very inexpensive assets. Normally at a business liquidation auction, the average price is ten cents for every dollar of cost.

Another function of a slowing economy is that firms often let good employees go as they can no longer afford the overhead. Consequently, if you can afford it, this is a perfect time to bring on some great new employees that would otherwise be unavailable. This labor surplus will last mainly during this year, however. Once the economy starts to improve around the middle of 2009, you can expect the labor supply to be very tight for the next five years.

Finally, the last thing that you can do is look at every vendor contract to see if you can negotiate better prices. Like you, most of your vendors are seeing their sales slow and will want to maintain their customers at almost any cost. If they have to choose between a price reduction and losing you as a customer, they are going to give you the price reduction — so long as it is within reason.

While sales and profits will be negatively affected, recessions present a number of advantageous business opportunities, from property acquisitions to price reductions. Now go out and find these opportunities and take advantage of them.

You can do this!

Jerry Osteryoung is the Jim Moran Professor of Entrepreneurship in the College of Business at Florida State University. He is also the Director of the Entrepreneurship Program at FSU and Executive Director of the Jim Moran Institute of Global Entrepreneurship. He can be reached by e-mail at jostery@comcast.net or by phone at 850-644-3372.

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