Today, we’re tackling topic many people find uncomfortable — is a recession forecast for the near future? The short answer is yes, but don’t let that scare you. A recession is likely, but you can survive it and so can your business.
We’re going to look at how recessions affect business and what you can do to prepare your business and yourself before it hits.
After all… a recession is coming.
Recession Forecast: Can a Recession Be a Good Thing?
Recessions are actually extremely predictable. If you look back, you’ll notice little dips every three to four years and larger downturns every 10 or so. Every now and again, little blips pop up like the early arrival of the 2008/2009 recession. However, by and large, they’re on time.
And now it is time. Will a recession happen in 2019? Unfortunately, yes. However, the next three to six months we will still be in an accelerated growth phase. This might seem contrary to what we believe we know about economics, but this is normal. There will be a slowdown in 2019 and into 2020, but thankfully it won’t be too severe or last too long.
While selling your company before this hits is a logistical nightmare and largely not a good idea if you haven’t planned for it, don’t worry — you’ll have another chance to sell before the next real turndown hits. … too soon? It might seem counterintuitive, but how recessions affect business differs on the industry and you can use this recession forecast as a warning before you double-down on key plans.
A recession is coming, though it will be a few years yet until we see the big one. One to rival the Great Depression is forecast for the 2030s and we know it’s coming.
So just how can a recession be a good thing? You can capitalize on the market if you prepare well and prepare early.
What Causes a Recession?
If you look at how recessions affect business, it’s pretty interesting. When you consider companies that were able to sell at top value before the ’08 slowdown hit, and what they were able to do with that money after (investments, innovation, acquisitions, etc.), it’s not hard to imagine how you can capitalize on a weakness in the market.
Economist Alex Chausovsky of ITR Economics told us they’re calling for a significant economic decline during the 2030s in the United States. We’re not talking a recession like in 2008; we’re talking something like the Great Depression of 1929.
You need to take this recession forecast seriously. While there are no guarantees when it comes to the economy, you can improve your odds of surviving a recession. But first, you have to understand what drives the economy. Alex explains that the economy is driven by three things:
More people means more consumption.
If you have more people buying more stuff, the economy makes money. So we want people to be spending their money on things from dinners out to new cars. We also want lots of people to be doing these things so the economy has more cash injected into it.
You need to have the rule of law.
To successfully drive an economy, there needs to be recourse to action if someone doesn’t hold up their end of the bargain. This extends to society as a whole, of course, as stability is the breeding ground for innovation.
You have to have resources that can sustain the growing population.
Natural resources like clean drinking water and food to feed the populace, among other things, need to be plentiful. Or, at least plentiful enough to grow your population. This point also leads back to item #1 — if you have more people, you need more resources; you need more resources to sustain more people.
A breakdown in the economy happens when these things go out of whack to some degree. A lot of the time a recession forecast is preceded by high inflation rates. As we charge more money for goods and services (partially because of trade tariffs), people spend less money. They simply can’t afford what they used to be able to. Sound familiar?
This is a massively simplified view. However, it demonstrates what will happen to your business, even indirectly. If you make products or services that people can no longer afford or justify buying, your business is going to take a hit. As the goods and services you buy to then use in your company get more expensive, you’ll have to raise your prices and, therefore, fewer of your clients and customers will be able to continue spending their money with you.
Your valuation will suffer as your ratios change. More debt, fewer or weaker revenue streams, higher interest rates, difficulty attracting the right talent, etc. all have negative effects on your valuation.
You’ve heard the recession forecast. So what can you do to prepare?
You feasibly have five to ten years to figure out a plan or two. You need to start that plan today, however, if you have any hope of capitalizing on the downturn.
First, you need to address what you want to happen to your business and yourself in that timeframe. Do you want to exit, or do you want to continue with your company? If you sell your business, do you want to start a new company or do you want to enjoy your retirement? Or are you a more aggressive business owner and want to put yourself in a strong position to make acquisitions when companies are valued lower during the recession? … And are you therefore willing to take the risk that you might not get the highest valuation for your business?
These are all perfectly fine plans. Start your business due diligence to see where and how best to approach each and set yourself on that course — now.
You need time to set your plans in motion and ensure their success. Good due diligence takes longer than you’d think, especially if you’re working on multiple avenues to secure the outcome you want.
Can a recession be a good thing? Yep, if you’re prepared. Nothing you do to recession-proof your business will negatively impact it, either way, so what do you have to lose?
Check out GEXP Collaborative’s Ultimate Guides to get started.