What Businesses Are Recession-Proof?

Are you selling something that is essential to daily life? Then it’s probably recession-proof. Otherwise, you might feel the squeeze in dark times.

Written by Micah Murray / June 22, 2022

Quick Bites

  • Essentials like grocery stores and auto mechanics are some of the most recession-proof businesses.
  • During a recession, many consumers limit luxuries like travel and expensive restaurants.

In times of recession, the best businesses tend to be the essential ones–gas stations, grocery stores and pharmacies are some examples. The worst are those that take our disposable income–hotels, five-star restaurants and cruises.

Today, we’ll talk about what a recession is, how different industries are impacted and offer some tips from the experts to help you make sure your business can survive a recession.

Inside this article

  1. What is a recession?
  2. Recession-proof businesses
  3. Best businesses in a recession
  4. Worst businesses in a recession
  5. How long do recessions last?
  6. Recession-proof your business

Let’s first break down what a recession is and isn’t

Many of us have lived through at least one recession. Our great-grandparents and grandparents faced the Great Depression, and Boomers, Gen Xers and Millennials faced the real-world ramifications of the 2008 recession. Another one may be looming.

When you ask economists what a recession is, you’ll get a varying degree of answers because there is no exact definition agreed upon by experts. One of the more common definitions is based on the country’s gross domestic product (or GDP, the measure of the value of goods and services in the country). A general definition of a recession is if there have been at least 2 consecutive quarters of negative GDP.[1]

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The National Bureau of Economic Research (the non-profit that declares when a recession has started or ended) offers a more generalized definition.[2] They say that a decline in economic activity that lasts more than a few months is considered a recession. They also factor in unemployment rates and domestic production.

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What makes for a recession-proof business?

During a recession, the businesses that fare the best have a couple of things in common.

They are essential or worth the indulgence

Businesses that provide essential services or sell essential goods are some of the most recession-proof–they provide things we can’t go without like food and healthcare.

On the flip side, there are businesses that are not essential, but consumers deem it worth the indulgence, even if they are not always cost-effective. Why? Well, they make us feel good. Candy companies, fast food restaurants and other creature comforts remind us of brighter economic times and take the edge off stress.

They have a backup cash flow plan

Recessions come and go, and so will a business if it doesn’t have a backup cash flow plan. Should a recession happen, businesses may need to rely more heavily on borrowing options, including business loans and credit cards, as well as emergency savings. By establishing these options beforehand, businesses have a better chance of weathering rocky financial times.

They build multiple streams of income

Businesses with only one stream of income could find themselves more at risk of not surviving a recession. By diversifying your income streams, you spread out your risk, making sure that you don’t lose it all should one income stream fail.

Here are a few ways a business can expand its income streams:

  • Offering multiple different products or services

  • Renting out unused company assets, like office space or equipment

  • Using the byproduct of an existing product to create a new sellable item.

They have a budget

Creating and sticking to a budget is one of the best ways to keep your financial house in order. Businesses that hope to be recession-proof should have a solid budget in place that helps them organize incoming and outgoing transactions, business savings accounts, and debt obligations.

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They know how to do more with less

During times of recession, being able to adapt is a must, especially for small businesses.

“Small businesses already in operation can adjust to a recessionary environment by assessing their operating expenses and looking for ways to do more with less,” says Ben Johnston, chief operating officer at Kapitus, which provides business loan financing. “One way small businesses do this is by generating efficiencies in labor and consumption. For example, restaurants are addressing the current labor shortage, and resulting wage inflation, by reducing the duties of the waitstaff and management. Some restaurants have installed QR codes at tables that direct customers to online menus and order-taking software.”

Best businesses in a recession

There are some things we simply cannot live without. Food and healthcare are among our most essential needs, and even in a recession we can’t afford to go without.

Consumer staples

Businesses that sell or produce everyday consumer staples like food, gasoline and personal hygiene products are some of the best performing businesses during a recession. Even in hard economic times, people still need to purchase basic necessities.

Companies like Walmart and the Dollar Tree, which sell low-cost staples in one place, were top performers in 2008 during the height of the Great Recession.

Essential services and goods

Car mechanic shops, appliance repair companies and medical practices are all great examples of essential services that can continue to thrive during a recession. Even during bad economic times, cars break down and most people don’t have the know-how to fix them. The same goes for appliances, HVACs and electrical work.

Creature comforts and guilty pleasures

Indulging in creature comforts and guilty pleasures is a popular way to deal with stress. So much so that, even during a recession, people are willing to spend on things that make them feel good, even if their bank accounts don’t approve.

Liquor stores are a good example here. It’s been shown that alcohol consumption goes up during hard times, making liquor stores some of the strongest recession-proof businesses you can own.[3]

Baby goods and child care

In times of recession, families continue to grow and the goods to care for them are still a necessity. This is also true for childcare. Oftentimes, families need professional childcare services so they can look for jobs, go to their current ones or in some cases, work a second or third job to make ends meet.

Worst businesses in a recession

While every business should have a recession plan in place, there are some industries that are just going to be hit harder than others during troubling economic times. These include:

The travel and hospitality industries

For most, travel is a luxury, and it’s the first one to go during times of financial hardship. That means that hotels, Airbnbs and airlines aren’t going to be doing all that well.

The numbers speak for themselves: In the third quarter of 2020, when we experienced the shortest recession on record because of COVID-19, Disney reported that its parks saw revenue (the money it brings in) drop 85% for its parks and experiences division.[6] Similarly, American Airlines saw its revenue in that same time period drop 73%.[7]

Restaurants

Eating out is another luxury that many consumers cut back on, and restaurant owners and their employees may get hit hard. Big-name chains may be able to weather the storm, but it will certainly be more of a challenge for independently-owned places.

Retail

Retailers also struggle. If you don’t have the money, you can’t (or shouldn’t) be spending it. Shoppers put away their credit cards and cancel subscriptions when the bad times come around. If a business isn’t prepared, they could get seriously burned. In fact, during the Great Recession, several major brands filed for bankruptcy including General Motors and Chrysler.[5]

How long do recessions last?

The good news about recessions is that they typically don’t last very long. In fact, most recessions only last less than a year. One of the longest recessions on record was the Great Depression, lasting 43 months. The Great Recession, which began in 2007, lasted 18 months.

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Recessions are actually pretty common. Sometimes we don’t even realize they’re happening. 2020 is a good example. From February 2020 to April 2020, we were in a recession thanks to the shutdowns related to COVID-19. It was the shortest on record.[4]

Thinking of starting a recession-proof business? Tips from the experts

Offer lower prices than your competition

Sometimes, the best way to ensure that your business is recession-proof is to offer the cheapest product around.

“Founders who are looking to start a recession-proof business should survey the market in which they plan to operate to determine if there is room for a lower price-point, no-frills provider,” Johnston says. “For example, a town with only expensive boutique shops and high-end grocers may have room for a convenience store with lower price-points.”

Always prioritize your customers

Customer service is one of the keys to recession-proofing your business, says Christopher Sioco, chief operating officer of Parachor Consulting, a tax consultant.

“Customer service is considered the most effective recession strategy for ensuring a company's long-term stability,” Sioco says. “A business needs customer service to get repeated sales, and repeated sales are vital for survival during a recession.”

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Don’t invest all of your savings in a new business venture

When I spoke with she had some great advice for those who want to start a recession-proof business:

Don’t invest all of your savings into a new business venture, says Alice Li, owner of First Day, a multivitamin brand.

“It's pragmatic to raise capital for your business and then invest some of your savings along with that capital if needed,” Li says. “Keep an emergency fund at all times and apart from that, keep a portion of your savings in case things don't work out as you planned.”

The bottom line is, if there’s something you sell or provide that’s absolutely necessary to survival, that thing’s probably going to be a very valuable business to be in.

Article Sources
  1. “Recession: When Bad Times Prevail.” International Monetary Fund. https://www.imf.org/external/pubs/ft/fandd/basics/34-recession.html
  2. “Business Cycle Dating. ” National Bureau of Economic Research. https://www.nber.org/research/business-cycle-dating
  3. “Economic downturn increases alcoholism.” ​​The Johns Hopkins News-Letter. Nov. 7, 2011. https://www.jhunewsletter.com/article/2011/11/economic-downturn-increases-alcoholism-99264
  4. “Business Cycle Dating Committee Announcement July 19, 2021.” NBER. July 19, 2021. https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021
  5. “The Auto Bailout 10 Years Later: Was It the Right Call?” Knowledge at Wharton. Sept. 12, 2018. https://knowledge.wharton.upenn.edu/article/auto-bailout-ten-years-later-right-call/
  6. “The Walt Disney Company reports third quarter and nine months earnings for fiscal 2020.” The Walt Disney Company. Aug. 4, 2020. https://thewaltdisneycompany.com/app/uploads/2020/08/q3-fy20-earnings.pdf
  7. “American Airlines Reports Third-Quarter 2020 Financial Results.” American Airlines. Oct. 22, 2020. https://americanairlines.gcs-web.com/news-releases/news-release-details/american-airlines-reports-third-quarter-2020-financial-results

About the Author

Micah Murray

Micah Murray

Micah is a personal finance writer and editor from Augusta, Maine. His work has been featured on sites like Money Under 30 and RateGenius. He is passionate about helping others build their financial literacy and, in turn, improve their lives.

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