Jobs are being cut left, right and centre in even some of the biggest companies across the UK, and in fact the whole world. This global recession has got people feeling more than a bit jittery about their long-term aims and where they see themselves in 10 years time, or even 10 months. Every cloud, though, does have a silver lining.

With interest rates at a staggeringly low level, returns on traditional forms of investment are also staggeringly low. Although those with expertise in the stock markets may decide to have a punt (and lets face it IS a punt!) on some kind of market growth product, anyone without deep expertise in the markets or a fantastic IFA and deep pockets is almost certainly better off investing elsewhere. With falling interest rates and anticipated increases in inflation, let’s say that you invest with a 3% annual return but that inflation is running at 4.5%. Stick it in a bank and you are effectively LOSING 1.5% at a minimum (ignoring all the fancy compound interest rate and net present value calculations which would probably serve to make the figures worse). You would of course be taxed on the full 3% you receive, so on the basis that you invested £1,000 for a year, you’d receive £30 Interest (taxed at up to 40%) so your £1,000 would actually grow to £1,018 after a year. By then, you would need £1,045 just to maintain the same spending power as you had at the start with your £1,000. So now you have paid the government £12 to reduce your spending power by 2.6%.

You should of course put some money away for emergencies etc, but if you’re looking to make any medium to long term investments, then you should seriously consider investing in your own business, where you can achieve much greater long term returns.

In practice, there are a lot of people out there who have been looking for a reason to leave the jobs they’ve been in for decades, or spend more time with their families and in many cases, redundancy has actually been a blessing in disguise. Many people actually see it as an opportunity: an opportunity to set up their own business. That’s not to say that only those who have been made redundant can seize the opportunity however. If you’ve simply got an idea or a whole business plan waiting to be put into practice this is still a good time to invest in your own business and invest in yourself.

Now bear with me, it might seem a bit reckless to seemingly throw money around, which quite frankly is a little tight in most households at the moment, investing in a brand new unproven business. Starting a business when the economy is booming can seem daunting let alone at a time like this but a recession can sometimes be the perfect time. From the business owner, or entrepreneur’s, point of view there are a number of benefits in setting up a business in this climate. Firstly, there are a wealth of people out there looking for work and a lot of them are skilled or experienced people who have been made redundant so you can find and recruit staff of a calibre that may ordinarily be out of range in happier times.

New businesses are now also more aware of what their customers want. More established businesses can be stuck in their ways or find it hard to adapt to changes in the economy and in the distribution of revenues across online and traditional offline channels. The very nature of the learning curve a new business goes through makes it a lot more flexible and responsive to changes in market conditions than the management teams of more established businesses, many of whom are absorbed in dealing with the effects of the recession with vast infrastructure and headcounts to handle.

In what is something of an irony, many larger businesses, because of the burning need to make cutbacks, will also outsource work to smaller companies or freelancers to save money in the long run. So, companies that may have lost out in business to their larger rivals during better economic times are now benefiting from the financial pressures under which their ungainly rivals must now operate.

In some ways, certain small businesses are less affected by the credit crunch by the fact they are looking for relatively modest amounts to get started. Because of the accessibility of credit in recent years, before the economic climate took a turn for the worse, the traditional methods of applying for small-business loans from banks were in many cases replaced by people using credit cards or home equity. This means that when these forms of lending largely dry up during a recession it doesn’t always hit the smaller businesses quite so hard. Most importantly, many are using money from redundancy payouts, friends, family and money withdrawn from poorly performing savings products to invest in new businesses and thus so haven’t noticed the increased difficulty in getting their hands on start-up finance through the traditional routes.

Another key benefit is the money you can save in taxes. Once the money has been initially invested in your business and you start trading, year-on-year you can then re-invest a percentage of the profits to help your business grow so although you’re still not seeing the money in your hand, these profits are directly benefiting your business and longer term goals. You are also potentially building something which has a capital value. Whilst you may have lost one (or more) zeros from your annual income in the short term, the equity value of the business in the longer term must also be factored into your view of earnings. A decent accountant is worth their weight in gold: whilst no-one should be avoiding taxation, there are numerous means by which you can minimise your tax liability on a perfectly legitimate basis. Many of these will be determined by the type of business entity you decide to use and where you decide to locate it and consultation with a professional from the very outset is advised.

In fact, small businesses have many benefits for the wider economy. Small business create jobs both directly and indeed in the businesses that provide services to them. Even if you only employ one or two people, that’s one or two people who aren’t claiming money from the state, are paying taxes and have the money to spend, thus fuelling the economic cycle. If everyone did that . . . .

Some business analysts argue that new businesses suffer more at a time of economic stability because it’s at times like that that larger businesses thrive and pose more of a threat to the start-ups. So, by all means, put some of any spare cash you have away for a rainy day but if you’ve got the money to invest (or access to it) and an idea which you truly believe will be your ticket to bigger and better things then don’t let the economic crisis, the recession, the credit crunch, weepings of mass depression — or whatever the media decide to call it this week — put a dampener on it.

There are many benefits to running your own business, and there are potentially even more benefits to running it at a time of economic downturn. Now just imagine if you could start a business with almost no capital …

Image Credit: www.thinkjayant.com

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