Economic Conditions: Recession

2 Ways to Spot the Right Business Opportunity in a Tough Economy

Jan 25, 2023 • 6 min read
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      The good news for small business owners during an economic dip is that running a small business is tough regardless of what the economy is doing. So, when times go sour, that strong resolve you’ve developed as an entrepreneur will make it easier for you to plow through and hopefully grow in the process. And your resolve will be most important when you’re assessing opportunity cost.

      What Is Opportunity Cost?

      Opportunity cost represents what you give up when faced with two or more options. They’re the road you take weighed against the one not traveled, and small business owners consider the opportunity cost of multiple choices every day:

      • A consultant might weigh the earning potential of taking on new clients versus the lifestyle afforded by the limited clients they have.
      • To raise a restaurant’s profile, the owner might be choosing between bringing in a big-time chef from New York or bringing forth a concept no one’s seen before.
      • Does a general contractor spend their tool improvement budget on refurbishing existing tools to make work more efficient or purchasing new tools to offer more to customers? 

      Assessing opportunity cost can be more stressful when cash is tight because the repercussions of making the wrong choice can be more serious in a down market. And this is where your resolve will push through.

      #1: Don’t Take Too Long

      The stress of a downturn can (and probably will) slow you down a bit. You’ll put in more time researching your options due to the increased gravity of every choice you make when the economy is working against you. And you may go back and forth a bit more than you normally do. But set a time limit by when you make a call and hold yourself to it, or you may stall your company’s growth. Your resolve will get you through the discomfort of making a decision, but you’ll be making it from a place of deep knowledge and reflection because you took the extra time.

      #2: Don’t Look Back

      Your resolve will be very helpful in reminding you that you can’t change the past, and in keeping you from focusing on already-made decisions—especially if factors beyond your control compromise your well-laid plans. But looking backward never helped anyone move forward. So, keep going with your eyes ahead and be willing to adapt if new opportunities come your way.

      An Opportunity Cost Decision Most Business Owners Face in Down Markets 

      Revenue has taken a hit and you need to generate more business, and you have two options:

      • Borrow money to improve or diversify your offering. This will result in you taking on more debt and a loan payment, but that money will allow you to immediately improve your offering, grow your team and pursue new markets. Whether it’s successful or not, it will take a few months before you know for sure. Either way, you’d have to start paying off the loan right away, which will be an immediate monthly hit to your bottom line.
      • Cut costs and use that saved money to build a growth fund for when the time is right, taking advantage of higher yields on savings accounts. You’ll be more financially secure for now, but it will take you years to save enough to improve or diversify, and you risk losing customers to a competitor who did improve and diversify. 

      So, do you roll the dice or stay the course? Do you opt for the discomfort of carrying debt and the possibility of exponential growth or do you choose security and the status quo? 

      Either way, make sure to consider both short- and long-term costs and gains. It can be tempting to assume an economic downturn will last forever and remain cautious, but historically, that’s not the case—and you might miss out on key growth opportunities. 

      Instead, take a bigger-picture view of your finances and, if it benefits your business’s goals, consider accepting some of the risk (that is, short-term risk for a longer-term gain) associated with borrowing money, otherwise known as financing. 

      And while business owners will almost always feel the risk in borrowing money when what’s coming down the economic road is a big question mark, the availability of financing options you can find in places like Lendio can help mitigate those risks. Lines of credit or business credit cards, for example, can work especially well in recession-related contexts, as they give you the option to take on only as much debt as your business needs at a given time, on a case-by-case basis.

      BONUS #3: Don’t Fear a Misstep

      Despite all the research, the option-weighing, and the late-night pacing sessions up and down your driveway, you still made the incorrect call. Guess what? You won’t have been the first person to step in it, and you won’t be the last. 

      What will define you as a business owner (and what will probably keep your business afloat) is how you course-correct after a misstep. Moving forward with the attitude that getting it wrong is an opportunity to get it right is the best way to think after making an opportunity cost decision—and this is especially true in tough times.

      The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post is not intended to constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

      See if your business is eligible for financing.

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      About the author
      Rachel Mennies

      Rachel Mennies is the owner of The Little Book, LLC, a small business that provides writing and editing services to individuals, nonprofits, and businesses of all sizes. At last count, Rachel's writing and editing skills have helped shape nearly 500 articles and blog posts for Lendio.com.

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