The economic impact on business depends on many factors.
The bleakest economy is not a guarantee of failure any more than a thriving economy is a guarantee of success. Understanding how the economy effects you, the small business owner, will help you overcome the obstacles that a stumbling economy may place in your path.
Taking a look at the current economic factors can provide a fundamental lesson in running a business in a recession. Here’s the breakdown of business economics, what has happened and how it could affect you.
The Housing Market
First, the housing market crumbled which has a huge economic impact on business. As the number of foreclosures increase, the banks are faced with substantial losses on their investments. As a result, the banks reduce the amount of new loans that can be made both to consumers and to businesses.
This reduction in the availability of small business loans are one way you may be affected. With less capital available, many business both large and small, must find ways to reduce overhead.
Job Losses
Often, this is accomplished by laying off employees.
As more employees are laid off, more become worried with the possibility that they could be next. This fear causes many to greatly reduce their spending. Both the thousands who are now out of work and the thousands more that fear they will lose their jobs stop spending.
This results in decreased revenue for retailers and other businesses which then, in turn must reduce their overhead. And round and round it goes.
There is no doubt that the economic impact on business is substantial. But that doesn’t mean that you are doomed to failure.
Just as many business fail during a booming economy, there are also many that continue to succeed during a troubled economy.
Advertise More
Yes, it might seem like a bad idea to increase spending during this time, but as other businesses struggle, advertising is often one of the first areas they cut. This is counterproductive.
You NEED advertising to succeed. The good news is that many magazines and other outlets will be offering reduced ad rates.
Even if you can’t spend more, do all you can to keep advertising as much as you have in the past.
Lower Prices
This isn’t the first option, but it might be a strategy that could save your business in a recession. Depending on your type of business, lowering your prices by a small margin could keep customers coming back.
Obviously, you can’t set your prices so low that you’re in the red. But if your profit margin is reduced by a few percentage points, isn’t that better than having to close your doors?
You’ve got to find ways to ride the wave of a bad economy and this might be what lets you hang on while those around you fall.
Reduce Overhead
If you’re already operating on a shoestring, there may be nothing else to cut. But, if you have some extra expenses that are not vital to the success of your business, then let them go.
Minimizing expenses will help minimize the economic impact on your business.
Yes, economic factors will affect your business, but that doesn’t mean you will fail. Buckle down and hold on. It might be a rough ride, but you have a good chance to make it if you learn how to best run your business in a recession.
