Should You Wait to Open Your Small Business Because a Recession Might Be Coming?

If you're thinking of becoming an entrepreneur but you're worried about the timing, this advice can help.

Opening up a business is a big decision. You'll be taking your future earning potential into your hands, so you want to make absolutely sure you're fully prepared to maximize your chances of success.

For some would-be entrepreneurs who are eager to open the doors of their company, the current economic climate might be a concern. With surging inflation, the Federal Reserve raising interest rates, and many experts predicting a recession, you may be worried about whether it's a good time to start a company.

The reality is, an economic downturn is a very real possibility and many companies -- even established ones -- struggle during a recession. But that doesn't necessarily mean everyone thinking about opening a company should push the pause button. Here are some questions you can ask yourself to help you decide whether to move forward now or delay.

How would your customer base be impacted by a recession?

The first big thing to think about when deciding if you should open your business now or wait is what exactly is likely to happen to your customer base in a recession.

Some businesses tend to do poorly when the economic climate turns sour. That's because people may lose their jobs -- or be concerned about an imminent job loss -- and so they cut back on discretionary purchases. That's especially true for people in the middle class who tend to be more affected by short-term economic trends than those who are wealthy. For example, jewelry stores and designer clothing outlets might struggle.

Other businesses, though, might do well during troubled times. Discount retailers, financial advisors, and alcohol providers generally thrive during a recession, so if your industry is in these fields then moving forward now might be a good move.

Ultimately, you should think about whether people are likely to use your products and services when they are worried about money. If they are, then now may be a perfect time to get your company off the ground.

How much money would you need to get through a downturn?

Another big question to think about is how big of a profit you need your business to generate right away.

Obviously, if you have high startup costs, you would need to begin making a reasonable amount of money pretty quickly. You don't just want to keep charging expenses on a business credit card for months on end without any money coming in.

But if your startup costs are low and you're OK with not making a fortune right away, then you may not need to put off opening your doors. You can get started during a recession when you may have less competition, start attracting a loyal customer base, and then wait for your business to pick up when things turn around.

What would you do in the meantime if you delay?

Finally, consider what else you would do if you don't move forward. If you can use the time to deepen your skills and strengthen your business plan while continuing to earn a good income at your current job, then delay might not be the worst move. But if you are unemployed and making no money anyway, then why not get started sooner rather than later?

Ultimately, the answers to these questions can help you determine your best course of action. But don't assume you automatically have to put off the start of your company just because of fears about the economy's short-term future.