Recession-Proof Definition

You may not anticipate planning for a recession when you’re a new business owner simply trying to understand liability and taxes. However, our business experts know that planning and pivoting are essential for any small business to survive an economic downturn. 

This page will explain the definition of recession-proof and answer what the qualities are of being recession-proof.

What is recession-proof?

A business can meet the recession-proof definition when it uses sustainable practices to make a profit regardless of economic downturn. Forbes defines a recession as an extended period of negative gross domestic product (GDP), high unemployment, fewer retail sales, and decreased income and manufacturing. The recession-proof business owner understands that a recession is a normal and unavoidable stage of economic growth. Making your business recession-proof means being flexible and leveraging your resources to ensure your business survives a recession.

Recession-Proof Benefits

During a recession, smart investors realize the advantages of having recession-proof stocks (also called “defensive stocks,”) like healthcare or utilities, to sustain their portfolio. The same is true for a business hoping to sustain its operations and capital. Choosing strong suppliers can help you bolster your inventory and continue operating regardless of high prices and low employment. Including recession-proof inputs into your business plan can improve your chances of securing new capital investments. 

Recession-Proof Considerations

A small business owner can plan for and expect the effects of an oncoming recession. However, one of the disadvantages of being recession-proof is that putting your plan into practice can be stressful. You might find yourself trying to manufacture a product or deliver a service with limited inputs. At the same time, as you are trying to find new revenues, other businesses fail all around you. You’ll need to work harder, find new revenue streams, and reinvest yourself. Further, a rescission means fewer competitors, so you also need to prepare for when the economy starts an upturn and others enter the market.

Recession-Proof Examples

The recession-proof business definition can best be explained with an example:

• Roger started a restaurant in early 2020. When the COVID-19 pandemic began, he returned to his business plan and pivoted toward a takeout model with minimal staff.
• Susan started a home construction business in 2005, and part of her business model included using local carpenters and materials. When the housing bubble burst in 2008, Susan began using recycled materials and continued to employ local tradespeople.
• Mike started an auto repair shop in 2018 and successfully gained and maintained customers. In 2020, Mike began offering home-based auto repair services, successfully adding a new revenue stream to his business during the COVID-19 stay-at-home orders.

A successful small business is naturally recession-proof, meaning its owners must always respond quickly and be flexible. Small businesses often have to adapt to economic challenges, whether a recession or other event.

Summary

The recession-proof definition includes a business, market, or asset that can maintain its value during an economic downturn. Planning and adapting quickly are essential to make your business recession-proof.

We Can Help

We’re ready to help you understand how to be recession-proof. Our business experts will support you through all parts of running a limited liability company or corporation. With our Worry-Free Compliance Service, we’ll help you stay organized and remind you of compliance deadlines. Plus, form your legal entity using our Business Formation Services, and we’ll continue helping you meet your goals through times of growth or recession.