A recession would hurt most businesses, but it would also enable a small number to expand at relatively low cost. Some of the winners will just be lucky, but even more will have set themselves up to take advantage of difficult times. This issue is timely given the recession risks from closure of the Strait of Hormuz and the resulting run-up of oil prices. The opportunities will appear across all sizes of companies but be particularly strong for small businesses, as a result of the Silver Tsunami of aging owners.
This article will explain the general opportunities available, then the large number of small businesses that will likely be scooped up, and close with planning steps that can be taken today to prepare for the possible opportunities.
Business Opportunities That Arise In Recessions
Bankruptcies abound in recessions. Sometimes, whole companies can be purchased at low cost. Even if the company is not bankrupt, the owner may choose to be rid of the business. That’s especially true of older owners of small and mid-sized businesses. Similarly, some corporations will focus their resources on their larger, more profitable divisions. They sell off operations in a particular territory or niche segment.
Well-managed companies cut costs in recessions but maintain inventory and customer service. But many businesses find that they lack the reserves needed, so they over-cut inventory and customer service. This is a prime opportunity for competitors. I have written about a company that maintained inventory when others did not. They got calls from buyers trying to find specific products, and by stocking the desired products, converted those callers into long-time customers.
Some companies are facing difficulties closing stores in great locations. Landlords have trouble finding new tenants in such times, so retail businesses with sufficient reserves can move into better facilities at relatively low cost.
Bankrupt companies often have valuable equipment that is sold for pennies on the dollar. A recession is an opportunity for companies with cash to shop for equipment that will either increase their capacity or improve their efficiency.
Talented employees are often laid off, or their bonuses are cut, so they are looking for other opportunities. This enables strong companies to staff hard-to-fill positions, expand into new markets or develop new capabilities.
The Silver Tsunami Of Small Business Owners
Nearly one-fourth of small business owners are over 65 years old, according to a 2023 survey by the Census Bureau. Another 28% are 55 to 64 years old. With the boomer generation aging, those figures are probably higher now. My fellow Forbes senior contributor Alison Coleman reported that “only half of retiring owners have formal succession plans in place.”
Half of business exits, according to the Exit Planning Institute, come from the “5Ds”: divorce, death, disability, distress, and disagreement (with partners). Distress refers to economic distress due to low profits, or no profits at all. Recession certainly accentuates the problem.
Running a business in difficult times is no fun. Having to dismiss employees is probably the worst part of being a business owner. Financial difficulties will increase small business owners’ desire to sell.
Planning To Take Advantage Of A Recession
How can a company take advantage of a recession to grow? In automobile racing, competitors often say, “To finish first, you first must finish.” That is, your car has to complete the race without failing. Similarly, a business that aims to benefit from recession must itself survive the recession. That involves operating before the downturn with reserves and a plan for handling lower revenue.
Beyond the recession contingency plan, benefitting from others’ weakness includes identifying good targets. There may be particular geographies or industry sectors where an acquisition would be good. It’s usually best for a business owner to stick with his or her knitting, staying within familiar industries and geographies, which still leaves plenty of room for finding an opportunity.
A business leader can also identify potential targets long before trying to close the deal. That’s an important reason to attend industry association meetings and trade shows. One can meet the person behind the other business, guess the person’s age and form a sense of whether that owner might be interested in selling in the future. Over time, a would-be acquirer can attend industry events to meet potential targets, then build a running picture of their strategy, strengths, and weaknesses.
In industries in which equipment is important, one can keep an eye out for companies with good machines that could be acquired in a distress sale.
A similar strategy works for talent acquisition. A manager can meet the key people at other companies and get to know them at industry and community events. Staying in touch through coffee meetings or lunches could pay dividends when the other person begins to look for a new job.
The key elements for a business gaining from a recession are considering the possible opportunities, protecting the company from the recession, and planning ahead for the possible growth opportunities that result from other companies’ misfortunes.
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