Timing’s right for a start-up
RECESSION: GOOD REASONS TO JUMP IN NOW
And when the economy recovers, there’s normally a spike in spending.
Considering that South Africa won’t see the full roll-out of a Covid-19 vaccine until later this year and is still reeling from the first and second waves of Covid-19, one might assume now is not an opportune time to consider starting a new business venture. However, the opposite may be true, if history is anything to go by.
In fact, past recessions have served as a launch pad for some of the world’s most successful businesses. Among these have been General Electric, launched by Thomas Edison right as America was heading into the panic of 1893, and Disney, which was incorporated by Walt and Roy Disney at the onset of the Great Depression in 1929.
Who’s to say that SA’s next major business success story won’t follow suit?
Here are some of the lesser-known incentives for starting a business amidst a recession:
When the economy is down, people are generally more cautious with their money, which means they are less likely to jump into a new business venture. The silver lining is there is less competition for those who do take the plunge.
They may benefit from lower start-up costs. Weak economic growth generally means that things cost less – from overheads, such as office space, to once-off purchases like machinery and furniture.
Plus, vendors are more likely to discount prices to move stock quicker.
As the Reserve Bank’s Monetary Policy Committee has kept the repo rate unchanged at 3.5%, borrowing rates continue to be at an all-time low – another perk to starting a business during a recession.
So, if you need to raise finance for a new venture, now would be the cheapest time to do it.
SA’s unemployment rate, which was already looking dire, was only worsened by Covid-19 – and saw it rise to a staggering 32.5% in the fourth quarter.
This has left many highly skilled people without a job and on the lookout for the next opportunity.
Highly skilled employees usually prove critical to a start-up’s success.
The good news is, when a crisis precedes a recession, we have seen that as soon as the threat lifts and life begins to return to normal, there’s usually a spike in consumer spending.
Entrepreneurs should prepare their business for slow trade initially but prime it for when things improve (such as reliable supply chain and digital readiness), so it can accommodate a boom.
If history has taught us anything, it’s that with any period of significant change and challenge, comes great opportunity.
Just make sure to do your homework and due diligence to ensure there is demand for your offering and follow all appropriate steps – such as a well-researched business plan and operating with valid appropriate licenses, where applicable.
Botha is Stellenbosch area manager for Business Partners Limited