For any active working individual in society, talking about “the Economy” is a regular subject around the coffee table: How the oil price keeps on diving, when the interest rate will creep up again, or what the housing prices look like in the coming year. People engage in these talks because, more often than not, it directly impacts their job security, income, and net worth, and… it’s also just fun to talk about. While “the Economy” can be a subject of small talk for some, it should be a serious topic for all small business owners.
Although macroeconomic fluctuations may not be directly felt by small business owners, major economic shifts such as the Great Recession during 2007-2009 can be detrimental to even the smallest businesses. Consumer spending is curbed, funding is tightened, and a vicious cycle of unemployment pans out. Needless to say, we’ve witnessed numerous companies small and large, new and old, close their books and disappear into history. Fortunately, many others survived the downturn and are thrived during the bullish market that followed. What did they do right?
Though there is no one answer to the question, businesses that prepared themselves to swiftly adapt to the changing environment fared the best. That is, even for small business owners, those who did their homework in performing sensitivity analyses (creating 3-4 business scenarios in the short and mid-term), and maintained a healthy brand equity, rose to the top.
More than anything, however, small businesses must be prepared to fuel their business with operating cash flow during these economic downturns. It is always sound practice to have multiple funding sources and credit lines, even if you are not using them all during the “good times”. By planning at least the worst, average, and best case scenarios for the near future, small business owners can minimize damage from external influences, while maximizing opportunities during upward momentums. All of these can be best achieved through an efficient and stable cash flow, often supplemented by cash flow loans, revenue based loans, small business term loans, SBA loans and the best merchant cash loans.