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.'
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.'
