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How to survive the next recession

  1. iStock_MaleraPaso
    Francois Badenhorst

    Francois Badenhorst Deputy Editor Staff Member

    Posts: 86 Likes: 16
    5 |

    Arguably one of the foremost features of our variety of capitalist economy is ‘boom and bust’. It’s such a staple that economists even call it ‘the business cycle’.

    The term describes a process of economic expansion and contraction that occurs repeatedly. The Austrian School of Economics (von Mises and the boys) would wince at the idea that boom and bust are inevitable. But, the fact is, as our economy operates now, it has been for decades.

    For people who’ve been in business long enough, they’ll know that every boom is bookended by a bust. Or as the UKBFer Talay put it: “When the reaper comes around again.”

    To channel Blue Oyster Cult, it’s this fear of the reaper that prompted Kiwi1234 to ask: “I'm wondering if anyone would be willing to share any lessons from owning a business in the recession?”

    The UK’s last recession kicked off in Spring 2008. Truly, the only thing that seemed to bloom that Spring was the unemployment rate. The economy shrank by 5% in 2009 and the recession dragged on for six quarters (an unparalleled streak in the Office for National Statistics’ records.) As far as economic reapers go, 2008 was a remarkably cruel one.

    The biggest lesson from this mess? According to UKBF member Pentel, it’s about using the boom to prepare. “Been in business since 1979, so have been through a few [recessions],” he says. “We have found that the companies that disappear tend to be the fast growing, minimal margin, maximum borrowing, no reserves companies who rely on turnover to keep the continued support of their bank.”

    When he spoke to UKBF’s sister site BusinessZone recently, Basecamp co-founder David Heinemeier Hansson offered the same thoughts. DHH, as he’s known, helped build Basecamp with a militant pragmatism that eschewed investment and borrowing. If you’re not making a profit and you’re not sustaining yourself, he said, then you’re at the whims of the banks or investors. “If you’ve got nothing else to fall back on, it’s going to be a hard landing.”

    The same lessons are advocated by UKBF’s membership. Any business that’s just clinging on, artificially maintained through credit, will likely struggle during the next, inevitable, recession. As Pentel says: “For me, it has always been: minimise the borrowing, protect the margin, have a reserve and grow within our means.”

    UKBF stalwart The Byre puts it even more directly: “Recessions are bad for companies that are in debt.” But, he notes, it’s not a complete write-off. “Recessions are good buying opportunities, especially if interest rates go sky-high and property gets cheap.”

    But ultimately it comes down to disaster prep. As grim as it may sound to be constantly prepared for the worst, a healthy degree of circumspection also comes with its own joys. As Mitch3473 explains: surviving a lean year makes the goods times a lot better. “If you can do it in a recession and succeed you should be laughing.”


    JEREMY HAWKE UKBF Big Shot Free Member

    Posts: 2,676 Likes: 870
    Its fantastic that this issue is being highlighted on the site and the main thread was quite active on this subject .
    I don't feel that business in general takes into consideration what would happen if "we are hit" Governments are scared to convey useful help in case they ignite something that would not have happened if nothing was said !
    There is a lot of experience on this site and these people have been though recessions and seen it I is important that this unwelcome subject is discussed
    Posted: Apr 12, 2017 By: JEREMY HAWKE Member since: Mar 4, 2008
    Francois Badenhorst likes this.
  3. Francois Badenhorst

    Francois Badenhorst Deputy Editor Staff Member

    Posts: 86 Likes: 16
    Hi Jeremy, thanks for the comment! It's very true what you say. Everyone is aware of the boom and bust - but we rarely focus on preparing for it.

    How about yourself? Were operating during the '08/'09 recession?
    Posted: Apr 12, 2017 By: Francois Badenhorst Member since: Aug 25, 2015
    JEREMY HAWKE likes this.

    JEREMY HAWKE UKBF Big Shot Free Member

    Posts: 2,676 Likes: 870
    I have seen down turns my first being 1991 ish under John Major I did OK then though !
    08 09 was not good !

    My main focus now is the ability to make effective adjustments quickly and react to changes within days or weeks .
    Posted: Apr 12, 2017 By: JEREMY HAWKE Member since: Mar 4, 2008
  5. Talay

    Talay UKBF Big Shot Free Member

    Posts: 3,655 Likes: 775
    The next one will wipe out more businesses than all previous recessions combined simply because the last recession culled so many jobs that every Tom, Dick and Harriott is running their quasi "business" from their kitchen or recently moved into premises.

    They have no backing, no capital, often no real business but have really only created (or bought) a job.

    That is not to deride them or their desire to do something rather than nothing but in critical analysis, they are weak and often run on very slim margins.

    The flip side of course is that some of those jobs will be protected as in the absence of alternative employment, the low income from their micro business is probably better than nothing.
    Posted: Apr 14, 2017 By: Talay Member since: Mar 12, 2012
  6. TODonnell

    TODonnell UKBF Ace Full Member

    Posts: 1,203 Likes: 176
    What would be great in the super-long-term would be a shift away of borrowing-for-inessentials.

    Like, I've read that the reason you see so many flash cars on the road today, in an era of overall negative wage increases, is ... debt.

    Our nation is in debt and we are in debt. That's cracked. We're no different to the people who went crazy for tulip bulbs.

    Still, the individual smart cookie can look at this sort of behaviour, work out how to make money from it, and then skedaddle before the Bust.
    Posted: Apr 19, 2017 By: TODonnell Member since: Sep 23, 2011