More businesses started in a recession?

A common topic of conversation amongst business owners these days is how the recession is affecting business. My stock optimistic response was something about more people starting businesses in a downturn than at other point of an economic cycle. The theory being that lots of people are finding themselves with a redundancy cheque and lot of spare time. As the majority of our customers are small businesses and startups, a recession works in our favour.

Privately, I wasn’t convinced by my theory. Especially after a chat with my good business buddy, Richard Osbourne from Efiling. He says they’re seeing a downturn of between 35-45% in formations from the consumer market.

I thought the worse we’d see here at KashFlow would be slower growth. We’re a young company, rapidly expanding.

It’s now been widely reported  that Sofware-as-a-service (SaaS), the business model we use at KashFlow, is growing very nicely in the downturn.  All of our KPIs (monthly turnover, # of sign-ups for our free trial, etc) would certainly seem to agree.

We’re also being approached by lots of companies and organisations that have existing customers bases of thousands of SMEs. They’re looking for new ways to extract a profit from them and want to explore reselling our software. Nice!

But what about this huge downturn in company formations? I think I’ve found the answer. There was an article in this weekends FT with the headlne Redundancy spurs rise in start-ups.

The Federation of Small Businesses (FSB) said the level of company start-ups would rise over the next year as people used their redundancy packages to set themselves up as selfemployed. But the FSB cautioned that a majority would remain sole traders, dashing hopes of job creation.

If they’re remaining sole traders then that would account for mismatch between the growth we’re seeing and the massive drop off in company formations.