Sunday, December 13, 2009

Business savings in a Recession?

One paragraph in the Oregonian's story on new Recession Business, really stood out.

"Recessionary economics shake out favorably for fledgling companies in some ways: inexpensive equipment, affordable labor, and better leasing terms from flexible landlords more willing to negotiate. On the flip side, it's tricky to obtain a loan or other start-up capital in this bear market."

That would certainly seem to make sense. But is it true?

1.) "inexpensive equipment." I haven't noticed that new fixtures or equipment have gone down in price. Used fixtures and equipment are always available, boom times or down times, but that is more the choice of the owner.

2.) "affordable labor". Minimum wage is minimum wage. At least in the type of stores profiled, minimum wage is the most likely wage.

3.) "better leasing terms from flexible landlords." Maybe. But with less than .5% vacancy rates in downtown Bend and Lake Oswego, the landlords wouldn't seem to have much incentive. I think there was about a six month to year period where the landlords were worried enough to negotiate. But as the downtown has continued to stay firm, I suspect the savings aren't there much anymore.

They certainly were there 25 years ago. Downtown Bend had more of a 50% vacancy rates. You could get a space with a handshake back then. I suspect it may still be true today, to a lessor extent, in the outlying areas. 3rd St, for instance.

Still, saving 10 or 20% would be an advantage. So that would seem to be the only place that most new businesses could save money. (Don't get too used to it, because landlords will be just as quick to raise rates when things get better....)

On the other hand,

4.) 'utilities and overhead.' I haven't noticed that these rates have gone down much, if at all.

5.)' inventory'. Sure, you can get some cheap stuff, but that's exactly what it is: Cheap Stuff. I haven't noticed that the good product is any cheaper than before. Like used fixtures, cheap stuff is always available, if that's what you want.

6.) 'buyer terms.' If anything, distributors tend to be even tougher on terms during down times than they are during boom times. They'll probably start you off on C.O.D. or with very tight terms. Most discount levels are decided by spending, not by credit worthiness.

Like I said earlier today, I think the advantages of starting a business in a recession are probably more psychological than physical. Being careful, not getting overextended, living within your means, are ideas that are always good, but more likely to be pursued when times are tough.

1 comment:

RDC said...

Recessions work out well for new companies because they tend to lower the hurdles for entry. Labor tends to be available, space tends to be available, etc.

But most important recessions tend to kill off existing businesses which are not well run. That creates competive vacums (there are customers of the failed businesses that still need suppliers) that small startups can move into. Also existing firms tend to cut back on advertising and other variable expenses which also give new startups some advantages. Basically that their message is not overwhelmed by the higher levels of marketing spend during "normal" times.