It’s no secret that the economy is in a recession. This has led to businesses failing all over the country. If you’re thinking about starting a business or investing in one, it’s important to be aware of the businesses that are likely to fail in a recession. Here are six businesses you should avoid investing in or starting in a recession!
When the economy takes a turn for the worse, it can feel like the whole world is against you. Businesses close, jobs are lost, and people are forced to tighten their belts. However, it’s important to remember that tough times don’t last forever. With a little bit of resilience and a lot of hard work, things will eventually get better. In the meantime, there are still ways to enjoy life and make the most of what you have. For example, instead of going out to expensive restaurants, why not invite friends over for a home-cooked meal? Or, instead of buying new clothes, try shopping at thrift stores or online consignment shops. By making small changes in your lifestyle, you can still have fun and save money during tough economic times.
Businesses you should avoid investing in or starting in a recession: luxury goods, businesses that require high startup costs, businesses that are highly competitive, and businesses that are reliant on discretionary income. These businesses will struggle the most during tough economic times as people tighten their belts and focus on necessities.
Look for businesses that are recession-proof or at least have some built-in protection against an economic downturn. These businesses include essential services (utilities, healthcare, transportation), businesses with low operating costs, businesses with high customer loyalty/repeat business, businesses that sell to other businesses (B2B), and businesses focused on online sales. These businesses are more likely to weather the storm during tough economic times and come out stronger on the other side.
Six businesses you should avoid investing in or starting in a recession
1 . Retail
So, you’re thinking of opening a small boutique? Or perhaps a local vintage shop? I have some bad news for you- businesses like these are the first to go when people start cutting back on discretionary purchases. That means that your potential sales are already taking a hit, even before you open your doors. So, what businesses should you avoid investing in or starting in a recession? Well, pretty much anything that isn’t essential. That includes businesses like restaurants, fashion stores, and art galleries. So, unless you’re selling necessities like food or medicine, it’s probably best to hold off on starting that new business venture.
2 . Mid-Market AirBNBs
There’s no doubt about it, businesses are booming in the sharing economy. Companies like Uber and Airbnb have completely disrupted traditional businesses like hotels and taxi cabs. And while these businesses may be flourishing now, there’s no telling how they will fare in a recession. After all, when money is tight, people are less likely to splurge on luxury items like ridesharing and vacation rentals. So, if you’re thinking of investing in a mid-market Airbnb, you might want to think again. While this business model may be profitable now, it could quickly become a liability in a recession.
As everyone knows, the Airbnb market has been booming in recent years. With more and more people looking to rent out their properties, it’s no wonder that the demand for mid-market AirBNBs has never been higher. However, as any savvy investor knows, a frothy market can be a dangerous thing. Unless your rental is supremely differentiated, a decrease in travel will break the projected revenues of your properties. So if you’re thinking of getting into the Airbnb game, make sure you do your homework first. Otherwise, you may find yourself caught up in a market crash.
3 . Restaurants
Restaurants are one of the businesses that get hit hardest during a recession. People are more likely to cook at home in order to save money, and businesses are also faced with soaring food prices and labor shortages. If you’re thinking of investing in a restaurant or starting one up during a recession, it’s best to reconsider. There are other businesses that are much more likely to weather the economic downturn.
If you’re thinking of opening a restaurant, you’re entering a business at the nexus of many different trends. On the one hand, restaurant sales tend to suffer during economic downturns, as people cut back on discretionary spending. On the other hand, food prices have been soaring in recent years, due to a variety of factors including droughts and the growth of the global middle class.
Finally, labor shortages are making it increasingly difficult and expensive to hire cooks and servers. In light of all these challenges, it’s important to do your homework before diving into the restaurant business. But if you have a passion for food and cooking, and you’re up for a challenge, there’s no reason why you can’t succeed in this exciting industry.
4 . Multi-family Rentals
Businesses like these are typically the first to feel the effects of a recession, as people tighten their belts and cut back on discretionary spending. When it comes to these types of businesses, it’s often best to wait for better economic conditions before investing or starting up. Multi-family rentals are one example of a business that can be particularly vulnerable during a recession.
Though there is always demand for safe, affordable housing, people are less likely to move during tough economic times. As a result, vacancy rates tend to rise, and rent prices drop, making it difficult for landlords to profit from their investments. If you’re thinking about starting a business in the rental market, it’s best to wait until the economy is on an upswing.
It’s no secret that interest rates have a big impact on the housing market. When rates are low, buyers have an easier time qualifying for a loan, which leads to increased demand and higher prices. Conversely, when rates are high, fewer buyers are able to qualify for a loan, leading to lower prices. However, there is one type of property that tends to be immune to these fluctuations: multi-family rentals. Because renters are not as impacted by changes in interest rates, they tend to be more stable than other types of properties. As a result, investors who are looking for a safe place to park their money may want to consider investing in multi-family rentals.
5 . Office Building Investment
Many businesses thrive in a recession, but there are some businesses you should avoid investing in or starting during this time. Office building investment businesses are one type of business to be wary of because the office building industry is highly cyclical.
When the economy is good and businesses are expanding, they tend to lease or purchase more office space. However, when the economy weakens, businesses downsize and cut back on their office space needs. As a result, office buildings can become vacant and lose value quickly. If you’re thinking about starting an office building investment business, it’s important to do your research and understand the risks involved. Otherwise, you could end up losing a lot of money in a short period of time.
Before the pandemic, the idea of working from home was mostly synonymous with the tech industry. But as companies across a variety of sectors were forced to rapidly adapt to a new reality, remote work became the norm for many workers. Now, as businesses begin to reopen their doors, there is debate about whether or not to return to the office full-time.
Some companies have decided to mandate that employees come back to the office, while others are giving workers the choice to work remotely or in person. And still, others are downsizing their physical office space and adopting a hybrid model. There is no one-size-fits-all solution, but it is clear that the pandemic has changed the way we think about work. Whether we return to the office or continue to work from home, the pandemic has taught us that we are capable of adapting to change and embracing new technologies.
6 . Car Sales & Auto Lots
Starting an auto lot or selling cars is not a smart business choice during an economic recession. The demand for new and used vehicles plummets when people have less money and are more frugal with their spending. If you must start a business during a recession, choose something that people will still need even when times are tough. For example, a food truck, janitorial services, or selling essential oils. By providing a service or product that people need, you increase your chances of weathering the storm until the economy rebounds.
The automotive industry is a volatile one, and even when sales are up, layoffs can happen. Recently, car-buying company Carvana let go 12% of its workforce, and Ford announced it was laying off 480 workers. While these numbers may seem small in the grand scheme of things, they represent a significant number of people who have lost their jobs. As the economy begins to slow down, it’s likely that we’ll see more layoffs in the automotive industry.
However, there are still plenty of reasons to be excited about cars. Auto sales are on a tear, and there are new technologies and innovations being developed all the time. So, even though there may be fewer Ferraris floating around Miami in the near future, there’s still plenty to be excited about in the world of cars.
So, there you have it – six businesses you should avoid starting or investing in during a recession. Keep these tips in mind, and you’ll be on your way to making sound financial decisions even when the economy isn’t looking so hot.