8 Small Businesses That May Thrive in a Recession

Economic decline won't impact every business equally.

We don't know what will happen to the economy next year, but many economists and business leaders warn the U.S. could enter a recession. As a result, both small businesses and individuals have been cutting costs and preparing for a potential slowdown. But not all businesses will struggle if the economy takes a downward swing.

Here are eight businesses that often do well in recessions.

1. Chocolate and other affordable luxuries

According to a trend called the "lipstick effect," people are more likely to buy small luxuries during a recession. They may not be able to splurge on expensive items such as vacations and new electronics, but they will often buy more affordable mood-boosters such as lipstick and chocolate.

2. Grocery providers

Businesses that provide essential services, such as groceries or healthcare, are relatively recession-proof. People still need to eat and wash their clothes, though they may use less money to do so. Consumers are also less likely to go to restaurants, meaning they'll spend more on eating at home.

3. Accountants and financial advisory services

Whether the economy is doing well or badly, people need to pay their taxes. They'll often want professional help to do so. Moreover, when people are struggling financially, they may rely more on the advice of financial advisors.

Business-wise, it's true that companies may look to minimize costs by using accounting tools. Equally, others may look to in-person accountants for help in keeping afloat. Accountants can help to make the most of any tax breaks or apply for relevant assistance programs.

4. Repair services

When people have less money in the bank, they are more likely to repair the products they already own than buy new ones. This means that car repair shops, plumbers, and electricians may see an uptick in business during recessions.

This doesn't only apply to cars and electronics, consumers are also using repair services to give clothing a new lease on life. Environmental and money concerns have driven growth in sustainable fashion in recent years, with growing numbers of people opting to repair and alter existing items.

5. Discount stores

Dollar stores outperformed other retailers during the 2008 recession, as people looked for ways to stretch their budgets a little further. A related trend to watch is reselling, particularly online. Demand from Gen Z and millennials drove a jump in secondhand clothing sales between 2020 and 2021, according to research from Cowen and other studies.

6. Freelance services

The gig economy has thrived in recent years, in spite of a relatively strong job market. If the economy shrinks and companies are forced to lay people off, many will look to freelancers to pick up the slack. As a result, companies offering freelance services in all shapes and sizes could find themselves in demand.

Small businesses can benefit from this trend by using gig workers to fill a number of tasks rather than hiring more staff. Some may also be able to offer their services on a freelance basis, particularly in IT, accounting, web design, and other areas.

7. Healthcare

As with groceries and taxes, healthcare is one of those services that people will always need. From pharmacies to doctors and care for the elderly, there's unlikely to be much decline in the demand for health services. That said, the industry was shaken up by the pandemic, particularly as many people put off treatment for non-COVID conditions.

8. Rental agents

Many industry insiders think the property market will decline in 2023, particularly after the boom that took place during the pandemic. Since people will still need roofs over their heads, less house sales could translate into more demand for rental properties.

Bottom line

As a small business owner, there are a few ways you can prepare for a recession. One is to keep a laser-sharp focus on your cash flow, making sure to invoice quickly and review expenses more regularly than you normally would. Another is to consider how you can best serve your clients in an economic downturn.

Perhaps there are ways you can adapt your services to offer products that may help your clients during a recession. Focus on providing value and consider what your customers really need. Not only will this increase your chances of survival, helping your customers will cement those relationships and position you for growth when the recession has passed.