5 Ways to Leverage Market Downturns as Opportunities to Make More Money

Your investment and money strategy guide to turning lemons into lemonade.
5 Ways to Leverage Market Downturns as Opportunities to Make More Money
Image credit: Hiroshi Watanabe | Getty Images

Free Book Preview Entrepreneur Kids: Launch Your Own Business

Submit your email to get a sneak peek of some of the fun, educational worksheets included in our NEW book for the little entrepreneur in your life.
Entrepreneur Leadership Network Writer
Managing Partner at Red Rocket Ventures
5 min read
Opinions expressed by Entrepreneur contributors are their own.

Chaos followed for most businesses in the wake of the coronavirus pandemic: the stock markets crashed, product demand fell and unexpected losses started to build up. Most businesses did everything they could to batten down the hatches to help them best weather the storm, including stopping all discretionary investments. But, should they have? 

Most great investors, like Warren Buffett, have been quoted as saying their highest return investments were made in the middle of economic downturns. So, theoretically, your highest return investments could be made right now, during the peak of the negative economic impact coming out of Covid-19. So, instead of retreating right now, you may be best served long term by accelerating your long term investment efforts, if you have the capital to do so. Allow me to explain.

1. Your vendors are more flexible 

You are not the only one whose business may be suffering from lower demand right now; most businesses are suffering from lower demand during downturns. Which means they too are struggling to generate revenues. And, when that happens, that is when they start to discount their prices, to try and drum up more demand and revenues. So, if you were normally going to spend $1MM on things for your business, you could now be able to buy those exact same items for $800,000, as an example. That is like adding $200,000 to your bottom line!

Related: Fight for Your Franchise Challenge: Money-Saving Efficiency Strategies

2. There is an over-supply of good talent

Over 40 million people have lost their jobs in the wake of coronavirus. Most of them are really talented people that just happened to be in the wrong place at the wrong time. These people are now looking for new jobs, and there is an undersupply of job openings. This means a couple of things for you: (1) You should have the “pick of the litter” of resumes to choose from; and (2) those candidates may be able to work for lower salaries than they previously worked for. So, your chance to “land the whale” in terms of great people at a great price will never be better than right now.

3. There is less competition during downturns

Many undercapitalized companies will not be able to survive an economic downturn. So instead of competing against 10 major competitors, you may only now be competing against seven major competitors. That 30% of revenues is now up for grabs, between you and your other surviving businesses. If you get an equal share of that, your revenues will rise 30%. If you aggressively market your business to take an even bigger share of that, you could position your business to quadruple your revenues, taking the accounts of four companies instead of your one company.

Related: 4 Ways for Millennials to Dip Their Toes Into Investing

4. Advertising costs are more affordable

The combination of companies going out of business and companies cutting their marketing efforts during downturns means, you should be able to see materially better returns on your marketing spend during downturns. I know that is true for my Restaurant Furniture Plus portfolio company; that business has seen its cost of acquiring a new customer cut in half. That means on the same marketing spend, I should be able to convert twice as many customers!

5. M&A targets are more affordable

The same “bargains” can be had in the mergers and acquisitions world, so this would be a great time to try and roll-up a bunch of your competitors at lower than normal valuations. As an example, let’s say a business that used to be generating $2MM of cash flow would have been valued at 6x cash flow for $12,000,000. But, today, they are only doing $1MM of cash flow, and that business may only be worth 4x cash flow, or $4,000,000. That is like buying a business at a 67% discount, when you know the demand and profits should return to historical levels as soon as the market conditions recover. So, now could be the best time to try and find businesses to acquire to scale your business long term, at low valuations today.

Related: This $35 Bundle Can Help You Recession-Proof Your Personal Finances

Use this time to grow and make more money

As you can see, there are a lot of potential reasons you should be accelerating your business investment efforts right now, not reducing them. Hopefully, you have some capital set aside to make these investments a reality. But, if you don’t, this could be a good time to raise some capital, with a clear pitch to your investors that this is the perfect time to be “buying low” and “selling high” at a later time down the road, after the markets improve. A smart investor should understand this concept of turning lemons handed to you by the market conditions into lemonade!


More from Entrepreneur
Our Franchise Advisors will guide you through the entire franchising process, for FREE!
  1. Book a one-on-one session with a Franchise Advisor
  2. Take a survey about your needs & goals
  3. Find your ideal franchise
  4. Learn about that franchise
  5. Meet the franchisor
  6. Receive the best business resources
Entrepreneur Insider members enjoy exclusive access to business resources for just $5/mo:
  • Premium articles, videos, and webinars
  • An ad-free experience
  • A weekly newsletter
  • A 1-year Entrepreneur magazine subscription delivered directly to you
Make sure you’re covered for physical injuries or property damage at work by
  • Providing us with basic information about your business
  • Verifying details about your business with one of our specialists
  • Speaking with an agent who is specifically suited to insure your business

Latest on Entrepreneur