Managing Your Business Through a Changing Economy

The conversations I’ve had lately haven’t just been around current cash flow projections. Many business owners I know have also been questioning how to prepare for economic changes. 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.

When Interest Rates Change

Interest rates are intrinsically related to the performance of the economy. The Federal Reserve, or “Fed” for short, will increase or decrease interest rates in response to economic changes. For example, the Fed might increase interest rates to help stem inflation or lower interest rates when the economy is struggling to further promote buying goods and services.

Not only do these rates impact the cost of borrowing money for your business, they may also impact how much disposable income your customers have to spend. So when rates change, it’s possible your bottom line could change with it.

Interest Rates 101 Guide for Business Owners

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. Here are a few questions to consider:

• How do different economic climates impact business operations?
• How will interest rates impact consumer spending habits?
• Will changing rates affect prices or production costs?

You also need to consider how changing economic factors could impact your financing. For example, if you have a variable rate loan – as 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.

I always recommend that business owners think about three things:

• If you already have fixed-rate loans, make sure you know when the rate matures. Determine at what point you need to refinance the loan or extend the maturity date and decide if you’re comfortable with that strategy.
• If you need access to cash to pay bills or cover employee salaries, it may be time to lock in a fixed-rate loan, but make sure the choices you are making are in line with your business needs and not in reaction to the market.
• Pay attention to your borrowing costs and weigh your needs. Business owners must weigh the cost of the funds with the potential for future return in order to make an informed decision.

Questions To Ask When Expanding Your Business

Closing Points

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. You can also subscribe to receive our Economic Insights Newsletter, for monthly updates on the economy, labor market, interest rates, and more.

Economic Insights Newsletter Subscription

If you’re looking for insight, your banker should be a helpful resource both in times of transition, and in general. Once you find someone you trust, make sure you’re able to connect with them on what you feel you’re doing well, and what concerns you. If you think something is trending in the wrong direction, it’s best to have that conversation together and find a solution.