By Kevin Theissen
The last couple of years have been challenging for everyone, including small businesses. As it seems we’ve come out of the pandemic, business owners were hoping that the worst of its economic impact would end as well. Not so fast, however, as rising interest rates and inflation now must be dealt with to stop additional financial loss – and without the likelihood of additional government stimulus.
There is worry by many business owners that inflation will lead to higher interest rates on both existing and future loans. They are also concerned about the shortage of people they can employ. The Federal Reserve recently raised rates 75 basis points and likely will be forced to increase interest rates even more. Although this rise is designed to reduce inflation, some worry it could potentially lead the economy into a recession. There is also significant concern with the current macroeconomic crisis, the unstable geopolitical situation and the lingering effects of the Covid crisis.
As everything continues to reopen, there will be a higher demand for services that weren’t available during the last two years, which means small business owners will need to expand their staff in order to keep up. However, job participation is 1.3% below what it was prior to the Covid crisis and business owners must deal with wage inflation.
The best way to handle market and economic downturns is to prepare ahead of time during growth periods and set aside cash to weather cash flow in challenging times. Aim to always have at least 12 months of cash reserves available and maintain a healthy business credit score so that you can qualify for a loan if money becomes tight. Additionally, you can analyze your fixed costs and find areas to reduce them. Before hiring new employees, know how their salaries will impact your fixed costs.
Kevin Theissen is the owner and principal of HWC Financial in Ludlow.