Starting any business comes with risks. When the economy is headed for a recession, things get tougher for entrepreneurs trying to get a new business off the ground.
Still, Canadian entrepreneurs aren’t sitting on the sidelines. If you’re looking for just the right opportunity, there are ways to navigate a downturn and mitigate some of the risks.
One way to help remove some uncertainty is to explore industries that do well in recession.
Recession-proof industries don’t necessarily guarantee success — no business is foolproof. However, analyzing past patterns can tell you which industries tend to weather recessions best so you can start a business the best chance of success.
In this post, we’ll look at:
- Whether or not Canada is headed for an economic downturn
- Which industries are hardest hit by recessions
- Examples of recession-proof industries
- Companies that do well during recessions
- What you can do if your business isn’t in a recession proof industry
Is Canada headed for an economic downturn?
The Canadian economy is headed for a recession, according to RBC.
The good news? It’s expected to be relatively moderate and short-lived.
A few factors are contributing to the current economic climate, including the pandemic, inflation, labour shortages and interest rate hikes.
The trick for entrepreneurs is to learn which industries are affected, so you can make wise decisions that will benefit you in the long run.
Which industries are hardest hit by recessions?
Let’s look at industries that might be good to avoid for the time being. These include:
- Automotive
- Retail (especially luxury items)
- Food service (bars and restaurants)
- Tourism and hospitality
- Real estate
- Travel
Why are these industries likely to take a hit? First, they rely on consumers having money to spend and second, these consumers must have the confidence to spend it.
A recession can reduce both of these significantly, with people feeling leery about big expenditures or having less money in the bank to put towards discretionary spending.
When a recession hits, people will still spend money but focus on needs first, delaying other spending.
What are the most recession-proof industries?
If you’re pursuing a business opportunity as talks of a recession loom, you’ll want to protect your investment as much as possible. So, what opportunities should entrepreneurs be eyeing that are most likely to remain viable during tough economic times?
Look for industries that tend to remain stable during turbulent times, making them relatively recession-proof.
Next, consider what type of business you’re looking to start and how it might support these industries. If you can find a way to meet a need within these recession-proof industries, you’ve got a good chance of creating something sustainable.
Related: Want to start a business in B.C.? Look at these local industries
5 industries for entrepreneurs to explore in a recession
If you’re looking to start a business now, here are five industries that are rarely affected by economic downturns. There are common threads that connect them. They are either services that people rely on no matter what is happening in the economy or industries less affected by interest rates.
1. Healthcare
People get sick, injured, or require care based on their health needs, regardless of what’s happening in the economy. As a result, they’re likely to continue to seek care or buy required supplies even in difficult times.
2. Government
Communities, large and small, need governing through good times and in challenging periods. Many of the services provided by different levels of government will carry on regardless.
3. Education
Schools and educational facilities continue to operate in all economic climates. When a recession hits, people at all stages of life may consider further training or education to change careers or find work.
4. Financial services
Banks and other financial services tend to stay steady through all economic climates. In fact, more people may seek financial support and services in tough times to ensure they are prepared to weather what’s to come.
5. Transportation
No matter what’s happening in the economy, all the consumer goods and necessities that people rely on need to be moved from where they are manufactured to where they are eventually sold.
Not quite your wheelhouse? You can rely on other broad sectors during a recession: construction, manufacturing, or agriculture.
What companies do well during recessions?
If you’re considering starting a business during a recession, you’d be wise to consider opportunities that fall into the categories above. Try to think of what people need to buy or spend money on, no matter what is happening in the economy, and explore ideas that meet those needs.
Companies that offer grocery items, consumer basics, repair and maintenance services, discount retail, or professional services are more likely to be able to attract customers in any economic climate.
Which businesses make the most money during a recession?
Let’s look at a couple of examples of companies that will likely perform well through the upcoming recession. These companies will need to fall into the abovementioned industries and meet everyday Canadians' basic needs to keep attracting consumer spending.
According to The Globe and Mail, it’s likely that both Walmart and Procter & Gamble will continue to thrive in the months ahead.
Walmart offers discounted prices on everyday items, helping people spend less money on the things they need. Proctor & Gamble, on the other hand, sells a broad range of personal items under various brands that are likely to be purchased even if luxury items are not.
What can I do if my business isn’t in one of those industries?
There are ways to reduce risk in any business venture, especially during an economic downturn. If you already own a business, take steps to protect your company through the recession.
You can also look at adding products or services that could serve these industries. For example, a software engineer might set out to create superior freight forwarding software to serve the transportation industry.
An entrepreneur might start a business that offers one-stop assortment and grading of products, packaging, and relevant legal services.
Another option is to explore new niches of clients who fall within sectors that are likely to remain stable. Check out this list of healthcare business ideas.
Do your research, then choose with confidence
Bold entrepreneurs jump on opportunities when they arise, but it’s good to do your research before diving into things. Look for industries that do well in recession in general, then target opportunities likely to meet the needs of cautious consumers.
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