Starting a business in a bull market is a help and a hindrance for the owners. In a bull market, the economy is doing well; stocks are rising, consumers are spending, money is flowing to new ventures, investors are taking risks. While many entrepreneurs enjoy this blissful period as the perfect time to start the business they’ve always dreamed of, they might be naive on how to operate in preparation for the next economic slump. It’s important to take caution and learn from the hardships of business owner veterans to avoid shutting down when times get tough.
Economists have noticed that historically, a bear market almost always follows the high of a bull market. Here’s what you can do to prepare.
Not necessarily stocks, but hey if you understand the market go for it. Use prosperous times to invest in yourself and your company. If projections look good, invest in better machinery or further education for yourself. You’ll be glad you did when the market dips and upgrading and expanding is no longer an option.
Create a Cushion
If investing in something big for the future seems like too much, a savings is just as beneficial. If you go wild overextending in good times, you’ll be stuck with too much credit debt and too many employees. No business owner has ever said, “Darn, I wish I had less savings to get me through this rough month!”
Prepare to Coast
Not coast as in relax and do nothing, but coast as in build up clients and projects that will financially carry your company through gaps in receivables. Building up future sources of income is crucial for coasting over the hard times.
Know Your Industry
If you notice a seasonal dip every year, magnify it times 100 for a recession. The slumps will still be there seasonally, only you won’t have much of a peak to get through the downturn.
In a lucrative bull market, it’s likely stock prices will be high. Following the upmarket trend, a bull market is a good time to launch an IPO. For more on IPOs, click here.
Utilize a Cash Influx
In a bear market, businesses seek alternative lending for extra working capital. In a bull market, businesses seek alternative lending for expansion capital and growth.
Each business is different and it’s difficult to forecast how any business should position themselves going forward, but in times of prosperity it’s usually best to invest in growth and set up reserves. Businesses owners who have already operated through recessions and economic downfalls know the importance of capitalizing on every opportunity and increasing future revenue flow outlets to help them coast through the next market dip.
One thing to watch out for is naive new businesses that start operations in a booming economy and are unaware of how to navigate through hard times. Those companies not only have less experience, but they also have less time to build up their credit and bank accounts in preparation for another market dip.
Typically, hard times create strong men, strong men create good times, good times create weak men and weak men create hard times. If you start your business in a good time, be smart and be prepared.