Why you should open a “recession-proof” business as a first time entrepreneur
All entrepreneurs want one thing: a profitable business. Easier said than done, we know. But there is something you can do to push the odds in your favour and lessen the risk of your investment as a first-time entrepreneur, and that’s starting a “recession-proof” business.
A “recession-proof” business is a business that is able to weather a financial storm much better than others. They either profit during a recession or scathe by hardly untouched. Sure, these businesses might see a small decrease in profit margins, but business goes on as usual— no layoffs or closing of any doors. It might sound too good to be true, but there actually are certain businesses that have historically done better than others during a recession. The classic examples of “recession-proof” businesses are funeral services (well, for obvious reasons) and candy and alcohol sales (since consumers tend to drown their money-related sorrows away in chocolate or beer).
The key to a “recession-proof” business
Financial experts have recognized an important thing that most “recession-proof” businesses and industries generally have in common: they satisfy non-cyclical consumer demands. Put simply, these businesses don’t sell the latest consumer trend or fad of the moment. Naturally, people tend to cut back on discretionary spending during a recession and are forced to make tough choices, so unlike businesses selling necessities and essential services, those selling high-ticket items or non-essentials are the first to feel the pinch.
If funeral services, candy or alcohol aren’t exactly what you envisioned for your first business venture, there’s no need to suppress that entrepreneurial fire! In general, many serviced-based businesses do well even during a recession because they provide services that consumers just can’t do without. Good examples are repossession services, medical services, accounting services and businesses that provide upgrades and maintenance to existing consumer belongings.
Renovations becoming as “recession-proof” as you can get
During economic hard times, people want to make better use of what they currently have instead of buying brand-new… and in comes the renovation industry. According to Scotia Bank’s 2014 Industry Trends, “renovation spending has been by far the fastest growing component of residential investment in Canada over the past decade.” In 2014 alone, renovations in Canada totaled a whopping $68 billion, $20 billion more than the $48 billion spent on new homes in the same year. Whether it’s because consumers have more money in their pockets, interest rates are favourable, tax breaks provide incentives or because Canada’s housing stock is aging, the renovation industry is showing long-term potential for growth and lucrative investment opportunities for entrepreneurs.
According to the Altus Group, a Toronto-based property consulting firm, growth in the renovation industry in 2013 and 2014 outpaced national GDP growth. Even after the 2007-2009 financial meltdown, renovations in Canada grew by a healthy 2.6% annually. The firm projects that the renovation sector will grow by 3% in 2016, once again overtaking the general economy.
But what happens to the renovation industry if the housing market goes down?
Ahh, the perks of being a recession-proof business. If and when the housing market goes down, homeowners will be less willing to sell in what will essentially become a “buyer’s market.” They stay put for another couple of years waiting for the market to bounce back and during that time, they tend to invest in the essential renovations that will add to their overall property value… and the money in their pockets. Home improvement businesses therefore reap the benefits, as their services are seen by homeowners as a solid and almost guaranteed return on investment.
According to a 2015 CIBC poll, out of all planned home improvement projects, basic home maintenance projects came out on top. Painting, flooring, general repairs and replacing appliances led with 64%, followed by landscaping, bathroom renovations, kitchen renovations, replacing windows or doors, basement renovations and repairs due to weather damage.
It pays off to do your entrepreneurial homework
Before launching a business, do what all savvy entrepreneurs do and get to know your market inside out. Of course there are always uncertainties when it comes to starting a new business, but by investing in a recession-proof business, you already start your business off on the right foot by eliminating some of the risk.
If you’ve always wanted to start your own business, why not a “recession-proof” one in the renovation industry? CLICK HERE to request info about our exterior painting franchise and to begin your application!