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How To Build A Recession Proof Business In South Africa

How to Build a Recession-Proof Business in South Africa

Lindokuhle Mkhize

Lindokuhle Mkhize

29 August 20234 min read

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 How To Build A Recession Proof Business In South Africa

How To Build A Recession Proof Business In South Africa

Building a business that survives the next recession is challenging but possible. Small and medium-sized enterprises (SMEs) contribute 39% to South Africa's economy. That's why we've come up with a guide on how to build a recession-proof business in South Africa.

Read on to equip yourself with different business ideas and tools.

What are recession-proof businesses?

Did you know? Burger King and Microsoft are both successful companies that braved horrible recession hits.

During economic downturns, consumers tend to focus on essential products and services. Small business owners should sell food staples, utilities, and personal care. Services such as healthcare, automotive, and education also remain in demand.

Consider offering goods or services that customers say are necessary for everyday life. Reports on recession-resistant sectors to invest in include:

  1. Utilities and infrastructure: Electricity, water, and telecommunications are essential services. People rely on these services irrespective of economic fluctuations.
  2. Online and digital services: E-commerce has made digital businesses "recession-resistant." Companies offering online retail or digital marketing may experience sustained demand.
  3. Food and beverage industry: Buying habits adapt, but the demand remains stable. Price-sensitive marketing, like the American dollar stores, drives value purchasing to customers. Appeal to your target market's buying patterns.
  4. Financial and accounting services: Businesses and individuals often need financial help. Navigating financial challenges and ensuring proper financial management is a must. Entrepreneurs should offer advice on money and bookkeeping as a consulting side hustle.

How do small businesses thrive in an economic downturn?

Assessing your business situation, market dynamics, and customer needs is essential. Some of the ways to ensure business stability include:

  1. Reduce reckless spending: Invest in online marketing, e-commerce capabilities, and social media presence. This can help expand your customer base and reduce dependency on physical locations.
  2. Create a cash flow plan: Cash flow management is crucial during economic downturns. Keep a close eye on your expenses and control inventory levels. Negotiate extended payment terms with suppliers.
  3. Establish flexible customer relationships: Invest in building solid relationships with your customers. Provide excellent customer experience, offer loyalty programs, and maintain regular communication.
  4. Overhead costs: Review expenses and seek cost-saving opportunities without compromising quality. Cut out what isn't necessary.

5 recession-proofing strategies for small businesses

Building a recession-proof business in any country requires careful planning and adaptability. Some of the ways to do this include:

  1. Expanding your market share: Explore opportunities to expand your product or service offerings. Target new customers and clients using email marketing and social media.
  2. Building employee skills: Invest in your employees' skills. This makes a business adaptable and resilient during a recession. Providing training and development opportunities enables employees to take on more responsibilities.
  3. Creating an emergency fund: Set aside some of your profits during stable periods. A cash reserve allows you to continue operating and making strategic decisions.
  4. Track marketing efforts: Small businesses must optimize marketing efforts during a recession. The bottom line is to maximize return on investment (ROI). Always track your customer growth rate and conversion rates.
  5. Adapt to change: Stay open to change in an ever-evolving economic landscape. Be proactive in identifying potential shifts in consumer behavior. Keeping an eye out for market trends can give your business a competitive edge.

The future of recession-proof industries

Finance experts predict South Africa to already be in a technical recession. Load shedding affects small and medium businesses the most. Weakening exchange rates force financial downsizing. Yet, economic research indicates that business ideas for start-ups are at an all-time high.

Recession-proof industries continue to thrive, with new customers even during economic downturns. Some sectors that show potential for the future include:

  1. Technology and IT services: As technology becomes increasingly integrated into our lives, the demand for IT services, software development, and digital solutions remains strong.
  2. Healthcare and pharmaceuticals: The healthcare industry is essential regardless of economic conditions. Demand for medical services, pharmaceutical products, and healthcare technology continues to grow.
  3. Renewable energy: Sustainability and environmental concerns are driving the demand for renewable energy sources like solar and wind power. This sector is expected to experience sustained growth.
  4. Online education and e-learning: As people seek to upskill and learn remotely, the e-learning industry has seen significant growth. Online education platforms and virtual learning tools are becoming increasingly popular.
  5. Essential consumer goods: Consumer goods that are considered essential, such as food staples, personal care products, and household essentials, tend to remain in demand during economic downturns.
  6. Thrift and bargain stores: Consumers often look for cost-effective options during economic downturns. Businesses like thrift stores that offer value-for-money products may see sustained demand. One thing customers will do is focus on affordability.

Staying resilient

Applying some of these strategies can improve your business's resilience during an economic downturn. Yet, it's impossible to completely cut out all risks during a recession. Stay vigilant and check your business's performance. And prepare to make the necessary adjustments to ensure long-term sustainability.


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FAQs

What business to start that is recession-proof?

Businesses that provide necessities like food, information technology (IT) services, or plumbing and electrical services are likely to have stable demand during a recession.

What kind of enterprise would be recession-proof in 2023?

One of the few sectors immune to recessions is healthcare. Whether it's for urgent care, inpatient services, dentistry, or optometry, people will always require medical care. Every type of small medical clinic is a wise investment when the economy starts to deteriorate. 

Which businesses should you avoid in a recession?

Some companies are more resilient to economic downturns than others. The following five industries should not be launched during a recession: high-end retail, hospitality, manufacturing, construction, and home services.

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