Now is truly a great time to launch a business. The horrors of the Coronavirus pandemic won’t last forever, and this situation has created a set of conditions for 2021 that are very conducive to starting many types of small businesses.
Among the greatest challenges startups generally face is the cost and availability of capital, and the cost and availability of employee or contractors. Both of these are in favorable places now, as we will address in more detail.
Not every type of business would be ideal in this environment, which can be both a blessing and a curse.
One thing that has become apparent through this ordeal is that reliance solely on foot traffic can be a problem during extreme times. New businesses not reliant on foot traffic or not completely reliant on foot traffic may be better positioned to capitalize on the present opportunity.
Availability of Capital
Interest rates are quite low by historic standards and capital is readily available. This is huge. The biggest reason so many new businesses fail is lack of capital. Many founders underestimate their business’ need for capital and don’t procure enough in advance.
Once you are up and running, there may be a period where it is more difficult to raise capital. In fact, it is often easier to raise capital while you are still working a regular job.
Lenders like the regular steady income of employment and are far more likely to loan you money than when you have just opened a business and revenues are spotty.
It is easiest to borrow money when you don’t need money.
If you are considering starting a business in 2021, you should make a detailed business plan and address how you will fund the business if revenues are not sufficient to cover expenses during the early months, or, in some cases, years.
Many founders also fail to sufficiently consider the working capital needs of the business. The time lag between when things need to be paid and when revenue is collected needs to be funded by working capital. Depending on the type of business, this can be significant.
Availability of Employees
There is a balance between too many and too few employees available. Having too few available clearly creates a problem as small business struggle to compete with more established larger business for talent.
When there are too many employees available, there are different problems.
Too many employees available is indicative of a weak economy and can foreshadow difficulties generating revenue.
We are currently at a national unemployment rate of 6.7 percent, with about 10.7 million people unemployed, according to the Bureau of Labor Statistics (BLS).
These numbers are just under double where we were last February, before the pandemic really began to take its toll. BLS data reveals that we were at a 3.5 percent unemployment rate, nationally, with 5.7 million people unemployed about a year ago.
We are in that somewhat favorable zone. We would all probably like to see a job available for everyone who wants one, but that doesn’t seem to come about.
What we do have is a large pool of people available for employment at the start of a new year, making it a relatively good time to be hiring.
The underlying economy is also fairly solid. There is not so much unemployment that demand is in the tank.
There is reasonable demand in many sectors of the economy. The laggard sectors may pick up as the economy continues its recovery, especially as more types of businesses continue to reopen.
There are also many freelance workers and specialists available for situations that don’t warrant hiring an employee. The talent pool is large and it is easy to find good designers and others to help your fledgling business take wing.
The Competitive Landscape
Unfortunately many small businesses have been forced to close their doors due to the pandemic and the associated shutdowns.
Some were able to adapt to a remote model, or somehow otherwise manage to continue to make it through this difficult period. Others simply couldn’t. There was just no way to bring in the revenue necessary for them to keep the doors open.
While this is an unfortunate situation, it also creates opportunity.
There is potentially a good deal of pent-up demand that will drive results as the economy continues to regain ground.
The old demand won’t, in most cases, disappear. But there are clearly fewer of the old businesses, small businesses in particular, to meet those needs.
There is a vacuum created by the business exits. There are some prime locations available by businesses that didn’t, for one reason or another, weather the storm. There are opportunities to position oneself to take advantage of the growth that will ultimately come back.
We can’t say for sure when, but we know that we have recovered from every financial setback our economy has ever experienced in the past. The track record is 100 percent.
Get Access to an Online Accountant
Risk vs. Reward
Most people are familiar with the advice to “buy low and sell high.” Fewer seem to follow it.
People want to buy what is going up and sell what is down, the opposite of what time has proven to be sage advice. 2021 isn’t the time people would intuitively think is a wonderful time to be starting a business.
What we do know is that there is a confluence of favorable factors, low cost and readily available capital, a pool of available qualified talent, an economy in recovery.
We also know there are risks. The economy’s growth could stall. There could be yet another wave of shutdowns or lockdowns or other reactions to events that are not business friendly.
There is clearly a higher level of risk to enter into a relatively down market, as you don’t know when it will go back up.
But isn’t that what we are looking for? We want to get in while it’s down. If we wait for things to improve, we will miss the biggest part of the run-up.
For a business, this is the chance for big growth; it is far easier to grow in a rapidly growing economy than it is to grow in a stagnant one.
The businesses that are starting in 2021 that will see later success are the ones who can take advantage of these opportunities and thrive in a virtual environment.
They will need to have a solid plan and be sufficiently funded to make it through any potential challenges we may face as events continue to unfold. That’s the deal with an uncertain situation, once the uncertainty is gone the opportunity is gone as well.
