When you have a small business, planning is everything. Should you hire more staff, boost your inventory, or greenlight a business expansion? It helps to know where the economy is going.
But today’s economy can seem especially puzzling. If you’re like many business owners, current trends can make planning a challenge.
- Inflation remains a driving force. Though, thankfully, our budgets have gotten some relief in recent months. The consumer price index clocked a 3.7% year-over-year increase in August 2023, but this is well below the recent peak of 9.1% in June 2022, reports CNBC.
- Interest rates are elevated. To help slow the pace of inflation, the Fed has repeatedly lifted its benchmark interest rate, increasing borrowing costs for consumers and businesses.
- The job market is chugging along. Defying expectations, given the recent interest rate hikes, many employers are still scrambling to fill vacant positions. Since 2020, the rate of new hires has exceeded the rate at which employees have quit, according to the U.S. Chamber of Commerce.
Economic Headwinds
Through all of this, the possibility of a future recession can weigh on the minds of small-business owners as they contend with existing or potential pressures, especially:
Rising Costs
Growing supplier costs and operational expenses can chip away at your bottom line or necessitate increasing prices –with the potential for pushback from customers. Some sectors are still affected by supply chain issues, such as manufacturing and construction. And, across industries, higher borrowing costs can make it harder to pursue capital investments, such as buying new equipment or renovating a facility.
Hiring Challenges
In a still-competitive labor market, the necessity of increasing wages to attract talent and the cost of recruiting and onboarding staff can be a significant burden. Staffing shortages can also delay strategic initiatives like launching a new service line or expanding to a new location.
Shifting Trends
Changing customer trends, disruptive technologies, and new competition are common risks. For instance, following the pandemic-related restrictions of 2020, consumer spending shifted heavily from goods (like appliances and furniture) to services (like travel and entertainment) as consumers emerged from lockdowns to resume pre-pandemic activities –affecting related industries.
Stay Prepared (and Flexible)
How can you increase business resilience as you navigate economic uncertainty? These steps are key.
1. Assess Your Finances
Having a solid grasp of your finances will help you make better-informed business decisions. Evaluate your revenue sources and assess their stability. Understand the timing of cash inflows and outflows and identify ways to cut costs, so you can help maintain stable cash flow during a temporary slowdown in sales. Also, make sure you have cash reserves that are easily accessible in a competitive business savings account.
2. Have a Plan
Identify specific risk scenarios, such as supplier price increases or a drop in sales. Consider steps to mitigate these risks and have a plan for how you’ll manage financial obligations along the way. A detailed contingency plan is one of the best ways to get ready for a difficult period and feel more confident as you guide your business forward.
3. Find Efficiencies
Leverage technology to streamline key business functions, such as financial management, sales and marketing efforts. By minimizing repetitive and time-consuming tasks through increased automation, you can keep your team focused on tasks that offer more strategic value – which is especially important when responding to changes in the marketplace.
4. Expand Revenue Streams
As the saying goes, don’t put all your eggs in one basket. Reduce dependence on a single revenue source by diversifying your product or service offerings – or your client base. This could mean exploring new markets, leveraging e-commerce or developing complementary product lines that fit your overall business model.
5. Reevaluate Vendor Relationships
Are you getting the most out of your supplier or vendor relationships? In some cases, consolidating relationships, taking advantage of early payment discounts or renegotiating the terms of your agreement can help you unlock savings opportunities or find other ways to get more value out of these key partnerships.
6. Strengthen Your Team
Identify skill gaps and provide training to enhance your team’s capabilities. This could include cross-training to make your team more well-rounded (and more versatile). Investing in continuous learning opportunities, such as certifications and specialized training, can boost job satisfaction for staff while keeping your business on the cutting edge.
7. Refine Your Cash Flow Strategy
Investigate backup financing options such as an operating line of credit to help smooth out cash flow during periods of uneven revenue. For smaller businesses, a business credit card can also be a smart cash flow management tool, helping you maintain visibility into day-to-day spending and better control the timing of expenses.
Keep Your Finances Running Efficiently
When navigating new challenges or preparing for new opportunities, you want to make the most of every dollar. Learn how you can support more effective cash flow and liquidity management with the help of Amegy Bank’s Treasury Management solutions.