You’re thinking of starting a business – but you’re also aware of the current economic climate. Current reports vary, but the majority seem to believe that the likelihood of a recession in the next year is high. For potential business owner this begs the question: is starting a business during hard economic times a good idea?

Here are a few factors to consider.

Hard Economic Times Favor Different Services

• What service or product are you offering? During difficult economic times, customers are less likely to engage with luxury services and are more likely to spend their cash on essentials.
• What is the price point of your product? People spend more conservatively during hard economic times. It’s important to understand your audience and how much they’re willing to spend on what you offer.
• Are you marketing to the right people? Pay attention to who you’re marketing to. Having a deeper understanding of your audience is key to make sure you’re reaching your sales goals. If you have a luxury product at a higher price point, but you’re marketing to a group that is less likely to have the necessary spending power, it’s unlikely that you’ll be able to meet your goals.

Audience Fluctuation During Difficult Economic Times

If you defined your niche before difficult economic times, you have the opportunity to pivot. Spending habits change in times like this. This means that while you may lose your current client base as spending is scaled back, customers who were seeking a higher end product may be looking for a more affordable alternative.

Being able to draw in a new customer base can not only keep you afloat as the economic landscape changes, but may encourage a loyal customer base that stays with you after the economy bounces back.

Top Financial Tips For Starting a Business During Hard Economic Times

According to Forbes, the top two reasons businesses fail are due to a lack of market demand and running out of capital.

Above, we touched on the options and opportunity for market demand. Now let’s dive into ways to financially prepare for hard economic times.

1. Have a budget. Having a realistic budget is always important in the longevity of a business, but during economic dips it’s even more pivotal. You should have an intimate understanding of your budget and how it may change as the market changes. Plan for circumstances to change. Most importantly, know ahead of time if you’re going to need more money. Preparing your budget for economic dips before they happen makes making real-time decisions simpler.
2. Understand your pricing model. Be critical of your profit margins. Is your product or service costing more than it’s making? If so, figure out what concessions you can make to flip that without reducing the quality of what you’re putting out.
3. Know your cost centers. Cost centers are the areas where you are spending money on your business that aren’t directly adding to your profit. Identify these areas and analyze why you have them and if you need them.

Mitigate Hard Economic Times with Good Accounting

Good accounting is always a factor in the success of your business. But when hard economic times surface, good accounting can save you. Poor business decisions happen when you don’t know your numbers.

At Encurio, we’re focused on providing thought partnership to help our clients navigate good times and bad. If you need a helping hand, set a meeting with us to see if we’re the people that can help.