The economic climate heavily impacts businesses of all size, but it’s usually the smaller enterprises that feel the effects more quickly than larger corporations. Whenever the economy becomes sluggish, it can create some considerable challenges and can affect your small business in several different ways.
The Impact of an Economic Downturn
The Great Recession from late 2007 to mid-2009 showed us just how a poor economy can rear its ugly head and take a toll on small businesses. During a major downturn small businesses can lose their footing, suddenly fighting just to stay afloat.
According to an article on Investopedia, “A significant decline in economic activity can lead to a loss of jobs, a decline in real income, a slowdown in industrial production and manufacturing and a slump in consumer spending – spending that drives more than two-thirds of the U.S. economy.” This trickles down and creates a lot of friction for small enterprises.
Concerns of Small Business Owners
While the current economic climate of 2016 is far better than it was during the Great Recession, it’s always in flux. Whenever it inevitably slows down, it creates a variety of concerns for small business owners. One concern is the difficulty they can experience when trying to obtain funding and financial backing.
Whether it’s a startup trying to get off the ground or an already established small business looking to expand, it’s no doubt going to be much trickier to generate capital during a time like this. As a result, this can make any significant growth nearly impossible.
Another frightening scenario is when a small business is forced to take on debt in order to get the ball rolling. Although paying back creditors may be fairly easy during a healthy economy when consumers have plenty of disposable income, sales are likely to dwindle during a slow economy, which can reduce profitability.
In this situation, a small business may find itself in over its head and may have to take drastic measures to keep things going. For instance, it may have to downsize, trim back product lines and generally become more lean. In a worst case scenario, it may simply be forced to go out of business.
Marketing is also a concern. When a small business brings in considerably less revenue, it may be forced to scale back its marketing campaign. In turn, this makes it more difficult to reach new consumers and increase exposure, which can result in fewer leads and ultimately conversions. This can create a vicious cycle where even less revenue is generated, which means even less money for marketing and so on.
Staying the Course
Although an economic downturn obviously isn’t ideal for small business owners, it’s important to remember that it’s only temporary and things will inevitably get back on track. One advantage that small businesses have over larger ones is that they can quickly implement changes to ensure that they’re effectively adapting to an economic decline. For instance, they could minimize product/service offerings, temporarily stop expansion and handle marketing in house for the time being until normalcy is resumed.
A down economy can affect your small business in multiple ways and can no doubt create some headaches. Staying nimble and adaptable will allow you to overcome many challenges and right the ship.