Recession-Proof Small Businesses and Franchises

1. Are there recession-proof jobs?
2. What does recession mean for small business?
3. Independent Start-ups versus Franchises. Which does better during a recession?
4. What are recession-proof industries?
5. Examples of recession-proof industries
6. What are recession-proof franchises?
7. Top 5 most popular business industries
8. Funding your recession-proof business or franchise

Just as businesses experience ups and downs, so does the economy. While economists say recessions are natural and necessary, the effects can be devastating to individuals and businesses alike. When fear of a recession rears its head, many aspiring small business or franchise owners want to know are there recession-proof businesses?

The truth is that people who own a small business or franchise are in a unique position to not only survive a recession but thrive – if they make the right decisions.

Are there recession-proof jobs?

Layoffs and hiring stalls abound during a recession as businesses look for ways to reduce spending. Even what were once considered critical roles can be downsized, leaving many — even senior staff — worried about job stability.

While there are jobs that stay in high demand during recessions (like health care providers, law enforcement, senior care workers, or IT business professionals), as an employee, your fate is in the hands of your employer. That’s just one reason why many turn to small business ownership as an alternative to corporate positions.

By owning your own business, your fate is in your hands only. You’re in charge of your own job stability and the overall success of your company. According to a survey by the Small Business Trends Alliance, founded by Guidant Financial, dissatisfaction with corporate America was the third most popular reason individuals pursued business ownership in 2019. And it’s a decision that’s paid off: almost half of owners surveyed said they were “very happy” with their life as a business owner, while another 29 percent said they were “somewhat happy.”

What does recession mean for small business?

There’s no doubt that a recession can have a negative impact on small businesses and franchises. Layoffs cause people to have limited disposable income to spend on unnecessary products and services and in turn, businesses have less money to spend on hiring or growth. As less money funnels into a business, it may mean budget cuts and layoffs are necessary to stay afloat.

But it’s important to understand that it’s not all bad news. Smart choices can lead some businesses and franchises to success even during a recession. Small businesses in certain industries can flourish during a recession, fueled by undying demand. It all comes down to making the right choice when you first choose what type of small business or franchise to start (or buy, if you’re thinking of purchasing an existing business).

Independent Start-ups versus Franchises. Which does better during a recession?

Both independent start-ups and franchises can weather recessions successfully – there’s not a clear winner. The real factor in determining which is better comes down to a personal choice for the business owner: do you want freedom in running your small business the way you want, or would you rather follow a system that’s already set in place?

Franchises operate by selling their franchisees a proven system for starting and operating their business. Franchisees pay the franchisor (the parent company) a set fee for the right to use the brand name and operate according to its guidelines. Franchisees are often offered ongoing training, support, and marketing materials through the life of their business.

The franchise business model can be ideal for those who don’t want to start a business from scratch, but still want to enjoy the freedom of being your own boss. And during a recession, having a well-known brand name with supportive resources can be useful to help you weather the storm.

Meanwhile, those who open an independent startup may benefit from increased autonomy to call the shots. But that freedom comes with the responsibility to come up with their own business model and build their new brand from the ground up. This business model is best for those who would rather make the rules that follow them and are open to taking on challenges and solving problems. Independent startup owners also have the freedom to implement changes in their business model at a moment’s notice to keep up with consumer trends, which can come in handy during a recession.

Learn more about startups versus franchises here.

What are recession-proof industries?

Once you’ve decided on whether you want to start an independent small business or franchise, the next step is to determine what business industry you want to go into. This decision carries weight: it’s likely going to have the biggest impact on how your business will weather a recession.

During a recession, people usually spend less money, usually due to unemployment or uncertainty. The main factor in a recession-proof industry is the ability for businesses to generate steady revenue despite lower consumer spending, signaling a constant demand for the products or services offered.

Other characteristics of a recession-proof industry may include:

• Selling products or services that are necessary for consumers, such as personal hygiene products or food.
• Offering a variety of products and services to meet limited budgets, even if they may be lower quality.
• Selling proprietary products or services that cannot be found elsewhere.
• Providing discounts and promotions as a competitive advantage to encourage patrons to buy from them.
• Focusing on the products/services that drive the most profit and dropping other products or services that are too costly to offer.

Examples of Recession-Proof Industries

Senior care: As the population ages, the need for elderly care services, such as in-home care and assisted living, has surged, making this market prime for growth, even in downturns. According to Business Insider, the U.S. home care market is expected to grow from $100 billion to $225 billion between 2016 and 2024.

Repair services: As Murphy’s law states, everything that can go wrong will go wrong. Things will continue to break during recessions. Whether it’s plumbing services, home repair, or auto mechanics, these professional services are still mandatory during recessions, especially as people attempt DIY repairs that don’t go as planned.

Food and beverage: Even if people don’t have much disposable income, they have to eat. Therefore, food and beverage businesses will continue to thrive during an economic downturn, especially if they have low-cost options. Many people turn to sweet treats for low-cost comfort. Specialty beverage stores and candy shops fared well during the Great Recession of 2008 as people looked for inexpensive ways to soothe their sorrows.

Alcoholic beverage manufacturing: As people have more down-time during work gaps, they may find themselves hosting more happy hours, which offers an opportunity for low-cost alcoholic beverages to thrive. While expensive cocktails may not do well, lower-cost alternatives such as beer, wine, and distilled alcoholic beverages tend to do well as people buy larger quantities of less-expensive products.

What are recession-proof franchises?

If a franchise is more suited to your lifestyle and business goals, there are several franchise brands that offer products and services that can be considered recession-proof. Demand for these businesses usually remains stable during economic downturns.

Hair Care

Even when people have less money to spend, they still want to look good, and they’re willing to let go of some money to achieve that goal. Hair salons and barbershops offer a relaxing experience to patrons, allowing them to escape reality for a few moments, and their services can be customized to fit even lower budgets.

Hair Care and Barbershop Franchises

Roosters Men’s Grooming Center
Supercuts
Diesel Barbershop

Professional Services

There are some services that can’t wait for the economy to rebound before they’re fixed. These include things like water damage in the home, plumbing emergencies, and even home-painting services as people look to spruce up homes they already own.

Service Franchises

Certapro Painters
Color World House Painting
1-800-Water Damage
Servpro Restoration Services

In-home Senior Care

As people live longer, the concept of ‘aging in place’ – helping people stay in their homes for as long as possible – is becoming more and more important. This, along with the increasing number of senior citizens in the world, has led to a boom in the in-home senior care industry. The industry has a revenue of $10.2 billion and an annual growth rate of 9.1 percent, according to an IBISWorld market research report.

In-home Senior Care Franchises

Assisted Living Locators
Home Helpers

Top 5 Most Popular Business Industries

How do recession-proof business industries stack up against the most popular small business industries today? According to data from the 2020 Small Business Trends report, the most popular small business industries were business services; retail; construction and contracting; residential and commercial services; and food and restaurant. Here’s a look at how they could fare during a recession, including some tips to make them more recession-proof.

1. Business Services

Business services like copying services, printing, and shipping, continues to be a strong industry for small businesses, tying retail as the most popular industry. Businesses (and consumers) will always need to ship items. Offering this service, in addition to being smart about expenditures, can help business service centers weather a recession.

2. Retail

Retail accounted for 13 percent of small businesses in 2019. While retail can certainly see a dip in sales during a recession as people have less money to spend on non-essential items, there are steps retail businesses can take to ensure success. Selling items people can’t live without (food, personal hygiene, etc.) and offering lower-cost merchandise options are just the tip of the iceberg. Discount retailers also thrive during a recession as the public looks to stretch their dollar.

3. Construction and Contracting

Construction and contracting made up 12 percent of small businesses in 2019. While the construction industry was one of the hardest hit industries during the Great Recession of 2008, that doesn’t mean another recession will have the same effect. Contractors can take steps to broaden their offerings to include smaller and cheaper jobs, enticing homeowners to move forward with fixer upper jobs to enhance their homes, or increase their sale value.

4. Residential and Commercial Services

Residential and commercial services include cleaning services, plumbing, heating and cooling, and others. Residential cleaning services may see a decline during a recession as more people opt to save money by cleaning their own homes. But when it comes to other repair services, emergencies can’t wait, and they will continue to see demand despite a downturn.

5. Food and Restaurant

Food and restaurant businesses came in at 9 percent of the share of small businesses. Since food is a life-sustaining necessity, these businesses have a higher likelihood of surviving during a recession. Cooking at home increases during downturns, so grocery stores usually come out ahead, but most people don’t cut out eating at restaurants entirely. Instead, they opt for budget-friendly meals from fast-casual restaurants (think Panera and Panda Express), so these types of businesses also have a higher likelihood of succeeding during a recession.

Funding Your Recession-Proof Business or Franchise

Once you’ve selected the business model you want to run (independent startup vs. franchise) and your business industry, the next step is to acquire the funds needed to start your business. A plethora of small business funding options exist, from conventional business loans to 401(k) business financing. Below are a few of the most popular ways to finance a small business or franchise:

Small Business Loans

Several types of loans are available to help small businesses start or grow. The most common type of business loans are those offered by the Small Business Administration (SBA). These loans boast low interest rates and long repayment terms, making them ideal for business owners, and they’re also guaranteed by the federal government, meaning banks will be repaid up to 85 percent of the loan even if it defaults. However, SBA loans may require you to pledge your home or other high-value property as collateral. If you’re unable to make loan payments during a recession, you could risk losing your possessions.

401(k) Business Financing

Also known as Rollovers for Business Start-ups (ROBS), this financing lets you use funds from your pre-tax retirement plan to start or buy a business without incurring tax penalties. Since it’s not a loan, there are no monthly payments or credit score and collateral requirements. Funds from ROBS can be used as a down payment toward a business loan – making it easier to combine financing methods like ROBS plus an SBA loan.

Unsecured Loans

Like a credit card, this option allows business owners to borrow money and repay at will, without needing to put up any personal property as collateral. Unsecured loans often offer low interest rates upfront that then grow after the introductory period, so it’s best to use this option for one-off purchases (rather than recurring) and pay them back within the first 12-18 months.

While there’s no way to predict when the next economic boom or recession will hit, by taking the steps to start and run a recession-proof business, you can build a strong foundation for a business that flourishes despite any downturns.

If you’re ready to take control of your money and your future, prequalify today and learn what financing options are best for you.