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How is the Economy affecting your Small Business?

David SolomonFeb 5, 2012

How is the economy affecting your small business? This is a commonly asked question, and rightly so. Research shows that the market is currently on the upswing, but growth is still not what it used to be. So there are rays of light poking through the clouds, however things are still not easy. Now what exactly does all this mean for small business owners?

There are a few direct ways we can see where certain aspects of the current economy are having their effect on small business. One of these is in the increased foreclosures around the United States. While this too is getting better, when banks are forced to foreclose houses it means that they have less capital to invest elsewhere. Small businesses (SMBs) need loans to survive and when banks have less capital, they have less to loan out to needy businesses. One additional sad side effect is that this ultimately forces small business management to hire less. With less people getting income, fewer can buy from the same small businesses that can’t afford to employee them. This is much more pronounced for small businesses because they rely much more on smaller pools of clientele. Any loss in steady revenue can be devastating. It’s a vicious cycle, but not one without hope.

Small businesses are the life-force of the economy and as operations improve, so will the economy. Fortunately, even with markets at troubling levels, there are SMBs that thrive in bad conditions. For example, retail and restaurants that sell discount or cheaper products tend to do well in poor economies. Even without money, people don’t simply stop buying. This tends to be a factor in stabilizing the market. By spending money on these places, it begins to put more money back in the businesses. These business trends let me companies increase hires, allowing for more people to eventually afford the higher end products. Just as the decline in housing market creates a negative cycle, the rise and fall of investment in quality goods creates a positive cycle for businesses.

We can look to the stock market as a good indicator of economic health. Rises in the stock market always come before the health of the economy improves. Business trends show positive signs for a turnaround, but we aren’t out of the water yet. Just remember that the success of small businesses spells success for the economy as a whole.