Navigating in a Soft Economy

 

Giovanni Coratolo
Executive Director
Small & Mid-Market
Businesses Councils
U.S. Chamber of Commerce

 

If you do a Google search using the phrase "surviving in an economic downturn," you will find a wealth of articles recommending that you closely monitor receivables, minimize your inventory, cut unnecessary expenses, and operate a leaner and more cost-effective operation. All of these suggestions have merit, but they are things you should always do-in good times or bad.   

 

Think Strategically. So what should you do differently during a downturn? You need to think more strategically, not operationally. Why? Because market fundamentals, such as credit availability, interest rates, consumer confidence, and unemployment, are in a state of flux, and changes could materially alter the way you want to operate your business. In addition, sector declines in one industry may ripple into others. Unless you are keenly aware of these changes in the business environment and understand how they will impact your company's business model and strategic direction, you may weaken your financial position.

 

Don't Sit It Out. Don't hunker down, waiting for better times to return. A common mistake business owners make in a downturn is thinking that if they can just hang on until the economy recovers, their revenues will return when it does. Wrong. Industries and their markets are constantly evolving, changing, and self-correcting. You must not unilaterally disarm your entrepreneurial instinct to change and adapt while you wait for a recovery. Further, there could be a fundamental transformation taking place concurrently in your industry that may negatively impact your revenue. If you inappropriately attribute this transformation to the economy rather than to a long-term business trend, you will emerge in a much weaker position. 

 

Uncover New Opportunities. Don't assume that because the economy is soft, all businesses will suffer. Although opportunities for revenue growth are not as plentiful as they are during good times, there are business sectors that will still thrive. For example, new car sales may decline during an economic downturn, but people still need transportation. If people decide to keep their cars longer or buy less expensive used cars, it would make sense that auto repair revenues would rise. Auto repair shop owners may decide to take advantage of recently enhanced bonus depreciation and expensing rules to invest in more efficient repair equipment.

Remember, there is no one-size-fits-all approach to navigating in a sluggish economy.  Establishing close relationships with other business and community leaders will give you terrific insight into how your peers are adjusting. One good way to do this is to work with state and local chambers. Networking with a cross-section of business owners is ideal for understanding what is happening in your community.