4 tips for small business owners in a weak economy
Small business owners are uncertain about the future of the economy, Cornwall writes, but there's opportunity even in a bad economy.
Caution and uncertainty continue to be the watch words for most entrepreneurs in the current economy.
Recent surveys of small business owners by the National Federation for Independent Business (NFIB) suggest that entrepreneurs are uncertain about the future of the economy and the impact of issues such as tax policy and regulation on their businesses.
The response of these business owners has been to be cautious about investing in capital equipment, growing their inventories, and expanding their workforce.
In the most recent NFIB survey from November of 2012, uncertainty among entrepreneurs about future business conditions reached a record high, eclipsing the previous record for uncertainty set during the Carter Administration.
However, even in challenging economic times such as these, there are pockets of opportunity to grow and expand your business.
There are four key considerations when evaluating opportunities during a weak economy:
- Look for “low hanging fruit.” Find opportunities where there are customers with a compelling need for what you have to offer. Consumers are also cautious in this economy, so it is important to find opportunities where the customer is poised and ready to spend money. And since money is tight for funding small businesses, finding eager customers should lead to a more rapid growth in sales. This will get the business to breakeven more quickly.
- Seek out high profit margins. Given the high levels of uncertainty we face in this economy, look for opportunities with higher profit margins that will give you more room for error should it turn out that your forecasts were overly optimistic. Higher profit margins will also give you a cushion should the predictions of increasing inflation come true. Small businesses always find it challenging to raise their prices quickly enough to keep up with increasing costs.
- Grow close to home. If you are fortunate enough to be able to expand your business, seek out growth opportunities that are closely related to your current business. When adding new products or services, make sure they are things you can sell to your current customers. You already have a relationship with these customers so selling to them will be easier and less costly. When growing into new geographic markets, pick markets that are close to your current base of operations to minimize the need to increase overhead costs to support these new markets.
- Pace growth to cash flow. Economic times such as these are not the time for being aggressive with your growth. While it may be tempting to seek any and all opportunities in the market, only grow as fast as you can fund with your existing cash flow and do not add on new debt. Since inflation is a concern, we can anticipate that sooner or later interest rates will be going up.
It is wise to be cautious right now if you own a business. But if you are careful and prudent, there are opportunities to grow your business, even during difficult economic times.
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