By Joseph Moser
The conversations I’ve had lately haven’t been around current cash flow projections. Instead they’ve been about preparing for potential changes in the economy. You don’t have to be an economist to know that the economy plays a major role in every business decision. Sometimes the only way to truly understand how to navigate the changing economic landscape is to simply live through a few economic cycles, or connect with someone that has. I’ve seen a few big shifts in the economy during my career, and it’s why I encourage local business owners to monitor the market.
Understanding how larger economic market trends may impact a local business can help when trying to plan for and navigate around them. So, when the economy starts to show signs of a change, here are some things you might want to consider.
When Interest Rates Change
During the past several years, we have witnessed some of the lowest interest rates in history. It’s important to understand why the Federal Reserve (the Fed) might change interest rates, and it all comes down to growth. For instance, when the economy is growing too fast the Fed may increase interest rates to moderate that growth in the hopes of avoiding inflation. These rates don’t only impact the cost of borrowing money for your business, but also may impact how much disposable income your customers have to spend. So when rates change, it’s possible your bottom line could change with it.
When Planning for Growth
You need to be realistic about your business. Anticipate what factors are changing, how they may impact your business, and how your potential expansion plans fit into your larger business goals. For example, if the rapid growth in the economy causes interest rates to rise, does that impact your customers’ spending habits? Does it impact the cost of producing your product? Should you consider raising prices?
You also need to consider how changing economic factors could impact your financing. For example, if you have a variable rate loan – should rates rise, your loan payment may increase but your income could stay the same. How will that decrease in available cash flow affect your business? Will it impact your plans to hire more employees or buy new machinery? In a changing interest rate environment, business owners must anticipate how the environment of their business and industry may change before making any big decisions.
When things like this happen, I always recommend that business owners think about three things:
It’s important to pay attention to the market but also the advice of those around you that you trust. Never be afraid to ask questions or seek input.
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