AU Professor: Pandemic could offer advantage for start-up businesses
AUBURN, Ala. (WSFA) - An Auburn University professor of management says the coronavirus pandemic may actually be a good time to start a business.
“Several very successful businesses have started in economic downturns or immediately following those downturns. Hewlett Packard, Uber, Venmo. There’s a lot less competition for resources right now, whether that’s people or space, or sometimes even raw materials. So on one hand, that makes it a good time to start,” said Franz Lohrke. “On the other hand, there’s so much uncertainty right now, people aren’t sure about their jobs. They’re holding on to their money.”
Lohrke admitted the current economic situation is one of the most uncertain times in recent history, and entrepreneurs always face high uncertainty when starting a business. But someone with a promising business idea should still weigh all the factors, and consider launching it before the economy recovers, they just may need to be creative.
“Whenever you start a business, you have to be very creative about your financing,” Lohrke added. “The biggest issue that businesses face is that they have to generate and hold on to cash as long as they can. And so that requires some creative financing sometimes. Sometimes companies that just get started will barter their services for other services. I’ll feed you in my restaurant for a month if you fix my air conditioner. And that way, I don’t have to get rid of any of my cash and I can use that to pay my landlord.”
Lohrke warns businesses owners, established or start-up, need to be smart about their business plans and cash flow.
“You can’t really rely on sales when you first start a business, even in good times, and in uncertain times it’s even tougher. So, you have to have that cash on hand to get you through these tough times,” Lohrke said.
“The best advice for entrepreneurs in this uncertain time is to make sure that the business you’re starting is based on sustainable demand not just on current shortages. Minimizing your fixed costs, the costs you have to pay regardless of what your sales levels are, prepare to be flexible, people’s needs can change, and then understand the economics of the business.”
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