Business owners always wonder how they’ll fare in a bad economy, but from my experience, the best opportunities arise when the economy isn’t doing well. It’s true that most people won’t buy things when the economy turns bearish, and it will leave business owners vulnerable. But a bad economy is the perfect time to take over markets. If you plan properly, it’s easier to purchase competitors at better prices.
Here are the three steps I’ve taken to succeed in “dark” times:
Identify when the economy will take a turn
History repeats itself; it will always be bullish and bearish. Learn to recognize when an economic shift is approaching. When things start to take a turn, these are the places to look for important indicators:
Look for rapid drops in major markets for consecutive amounts of time. When this happens, most investors start to sell and take higher losses, which in turn creates great opportunities for savvy investors. The common phrase associated with smart investing is, “Buy low and sell high.”
Gross domestic product is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. When GDP is continuously dropping, it’s a sign that a downturn is close.
Talk to your banker on a regular basis; look for them to tell you that they aren’t loaning much and qualifications are becoming more obtuse. When banking opportunities start running dry, it squeezes the economy as well as business owners. This can create great strategic opportunities if you have money in the bank and are looking to buy out competition.
This means your dollar can’t buy as much in a short period of time as it could before.
When all of these signs occur, there’s a strain on businesses and consumers, which gives strategic business owners great opportunities to buy.
Prepare to take advantage
Set up a line of credit, and be prepared with cash flow when the time comes. The best way to do this is by securing SBA loans for your business when the economy is doing great. After all, it’s best to set up a line of credit when you don’t need it rather than when you do need it.
The main goal here is to have access to money; when the economy is struggling, cash will allow you to get supplies and inventory and market at incredibly affordable prices. In a bad market, you’ll have the ability to get things at a much cheaper price, and when the economy turns bullish, you could quite possibly make a fortune from this investment.
In preparation of a down economy, you could also make yourself known in your industry as “the person who buys out failing businesses.” If you can offer a better solution going into the down economy, like an exit strategy, you’ll be the “go to” person getting the first shot at all the deals.
Be more aggressive competitively when the time comes
Hopefully, you’ve built your business on value, dependability and reputation — not price. When the economy starts to get shaky, don’t play the pricing game. Instead, invest in marketing and advertising to help acquire your competitors’ market share. Take measures that will help brand you as the “guru” of your industry.
It’s also important to define your strategy to acquire competitors before the economy recedes. A great tactic that most owners don’t even realize is to include future profits in the deal. For example, “I’ll give you $10,000 today and 8% of all revenue for the next two years that come through your old clients.”
Cornelius Vanderbilt is a great example of someone who mastered the art of growing a business through acquisitions: He was the country’s largest steamship operator at the turn of the century before he turned his focus to building the largest coast-to-coast railroad operation. He recognized the railroad industry was fragmented into smaller, separate entities, which he could consolidate into one major company by buying each entity separately.
You need to work hard and be willing to take risks if you want to thrive during bad economic times. Follow these three steps diligently to stay ahead of your competition. Acquiring the right competitors not only cuts them out, but allows your company to provide a better and more complete service for your customers.
Tommy Mello is the Owner of A1 Garage Doors, a $25M+ home service business. Now sharing what I’ve learned to help other entrepreneurs scale their business.