Has your business ever faced a rough patch?
Maybe it lasted for several weeks, months, or even a year. Perhaps you’re in one right now. It’s these types of moments that make or break your status as a business owner. Now, we’re going to ask another question.
Where were you 10 years ago?
If you recall the headlines, things were looking anything but optimistic. The signs had been lingering for about a year, but by the time Lehman Brothers collapsed, we knew we were in a full-blown recession. Even if you switched off the morning news, it seeped into everyday life.
A stroll down Main Street took on a whole different tone. A lively community hub with your favorite mom and pop businesses looked grim. Doors were shut or they were about close. The luckiest of them were barely keeping their necks above water. About 170,000 small businesses were lost between 2008 and 2010.
Going back home wasn’t much better. Driving up and down neighborhoods, you could see the literal signs of a recession. In red letters, they read, “BANK OWNED” or “FORECLOSURE.” You may have known someone who had to pack up and leave the place they’ve called home for so many years. Maybe you lived in one of the 4 million homes that were foreclosed in each year of the downturn.
Then there was the job market. 8.7 million people lost their jobs. You felt a little bit more grateful to be clocking in every day, even if that meant your hours were cut. For those who weren’t so lucky, the door to employment slammed shut behind them.
Now seems like the best time to be running a business. America has been experiencing the second longest stretch of growth in the post-World War II economy. Since 2009, there have been no slumps, no back-to-back quarters of contraction, or even a period of…recession.
However, like most Americans, the Great Recession has been in the back of your mind. Perhaps you’re even wondering when the next recession is due. Good times never last. You’re worried about the next downturn and how you will weather it.
The next recession is not too far away. You can prepare now…and make money doing it.
In June 2018, the National Association for Business Economics made a few forecasts about U.S. economy. Half of the panel expected that the next recession will occur sometime between Q4 2019 and Q2 2020. Two-thirds of expected an economic decline by the end of 2020. If you think that these predictions are grim, it gets even worse.
The Treasury Bond Yield Curve is the canary in the U.S. economy’s coal mine. As you probably know, a bond is a monetary loan that you give to the government with the promise that it will get paid back with interest. The yield curve is the difference between interest rates on short-term U.S. government bonds (2 years) and long-term U.S. government bonds (10 years).
When there’s an optimistic outlook in the market, the interest rate of long-term bonds will be higher than that of short-term bonds. When things go bad, these rates invert or flatten. These types of yield curves have successfully warned about each of the seven recessions over the last 50 years including the 2000 dot-com bust as well as the 2008 housing crash.
Recently, long-term bond rates have been slow to rise while the Federal Reserve has been raising short-term rates. So if one is slowly going up, while the other is going up at a faster rate, that means the curve is going flatten. Over the summer, the rate was the flattest it has been…since 2007.
A Storm is Coming
We know that you’re probably casting your doubts, as anyone right now would be.
“Recession? But the economy is in such a strong state. Quarter 2 of 2018 saw a 4.2% boost to the GDP and don’t forget about unemployment either! That’s now below 4%!”
Before recessions strike, there are booms in the economy. It’s called the “boom and bust cycle.” You can equate it to the story of Icarus flying too close to the sun. There’s only so high that we can go before we start to plummet.
The unemployment rate seems like a great thing…on the surface. The last time we reached unemployment around this low was in dot-com bubble in the 1990s which then followed by a tech stock crash and recession in 2001. America also saw this in the late 1960s which then followed by the economic turmoil and bear market in the 1970s.
“Well, even with these trends, data, and economic experts, you can’t know when the next recession will hit. Hindsight is 20/20 and people are always saying how we ‘should have seen it coming.’”
That’s true. No one can accurately predict the future. It’s why you don’t see fortune tellers switching careers and hitting up Wall Street. Plus, since the Great Recession, there have been plenty of sensationalists and doomsayers who are always trying to garner the media’s attention.
Fear creates ratings and ratings equals ad money. At this point though, you shouldn’t be debating if it will hit in 2019, 2020, or 2021. Focus on how prepared you are. After all, a broken clock is right twice a day.
Let’s take a look at the different possibilities. A recession might occur in 2020 or a recession might not occur in 2020. We’ll also look at your possible courses for action.
Recession 2020 Occurs:
- Prepared – You were ready for this since 2018. In two years, you’ve already secured a stream of recession-proof revenue for your business. You might have taken a few scratches or perhaps you’re unphased. The bottom line is that throughout the downturn, you were always able to find work in order to keep your business going.
- Unprepared – The best case scenario is that your entity is severely maimed. Other than that, you’re done for. All the effort that you put in your business these years has gone down the drain. You have no idea how you’re going to put food in the table, you’re probably going to lose your home, and the future for you as well as your family is uncertain.
Recession 2020 Does Not Occur:
- Prepared – With some extra work, you’ve cut down on your expenses and even diversified your streams of revenue. You’re still in business, but you’re a bit more cautious.
- Unprepared – You’re carrying on as usual. You did nothing and nothing happened. When the next recession inevitably does occur, just refer to the outcome above.
Hurricane Season happens every year between June and November. On TV, you will generally see two types of people. There are the ones who scrambled to get supplies, boarded up their homes, and evacuated when they were told to do so. There are also the ones who look into the camera and tell everyone they’re staying despite the evacuation orders. Sometimes the community is spared, sometimes they’re devastated, and sometimes it’s something in between.
Which type of person would you rather be?
“By failing to prepare, you are preparing to fail.”
– Benjamin Franklin
When All Else Fails, Turn to Uncle Sam
In the scenarios above, we mentioned “recession-proof revenue.” You probably rolled your eyes thinking, “Oh, really? Why didn’t anyone think of that in 2008?” We get it. During a recession, everyone is spending less. If you don’t have as many customers paying for your products and services, you’re not making as much money. If you’re not making as much money, it gets difficult or impossible to pay the expenses that come with running your business.
Everyone cuts down on spending except…the U.S. federal government. If you dig into your memory, you will also remember that Uncle Sam was spending money left and right to keep the economy going. There’s also a sure fire way to make sure some of that spending goes towards your business.
And no. We’re not suggesting that you take a private jet to D.C. and beg Congress to bail you out.
We’re talking about government contracting. According to the New York Small Business Development Center, government procurement of goods accounts for 10-15% of the GDP. That range stays at a constant no matter the state of the economy.
The U.S. federal government…
- Is the largest buyer of goods and services in the world.
- Is guaranteed to have money to pay you for the work you’ve done.
- Dedicates roughly 23% of its total contracting budget ( ≈ $500 billion) towards awarding small businesses.
- Spends more during times of recession.
- Buys practically every product and service imaginable.
Your only requirement to work as a government contractor is an active SAM.gov registration. That’s it. Right now in 2018, you could win a five-year IDIQ (indefinite delivery, indefinite quantity) contract. This means you will have guaranteed ongoing work until 2023. Even if we were hit with the next Great Depression, you would still have a customer spending money on your products or services.
If you start contracting now, you can develop working relationships with government agencies who need what you offer. By the time the recession hits, you will already have established a foothold in the federal marketplace. If you’ve developed a good enough past performance record, you might even be the first business these agencies reach out to for simplified acquisition contracts (which generally go up to $150,000).
Get a Headstart Now
If you go online, you will find plenty of advice and tips about surviving a recession. They will tell you to cut down on expenses, negotiate your rent, layoff employees, and so on. They don’t offer you a viable lifeline that you can obtain right now. We’re offering you that lifeline.
US Federal Contractor Registration is the world’s most trusted third-party government registration firm. When you work with us, you can guarantee that your SAM registration will be compliant and stay active. It’s why companies such as Amazon, Scholastic, Goodwill, Berkshire Hathaway, and General Electric use our services.
If you don’t know where to start, then we’re here to help. We bring small businesses the tools and resources for government contracting that were only once available to the largest Fortune 500 companies. Our clients aren’t just educated about the practices if federal procurement. We show them how to grow their business through the federal marketplace.
“What people didn’t understand going in was just the fact that everybody was a domino except the U.S. government and they were very close together…”
– Warren Buffet