Not every business is feeling it yet – hopefully, yours is – but by most measures the Great Recession, which started in mid-2008, appears to finally have run its course. Certainly the recovery, with annual growth in the economy sputtering along at around two percent, has been less than spectacular, but it certainly beats the economic contraction of three and four years ago.
So in the aftermath of a very troubling period, what’s in store for your small business? As always, the fortunes of any particular company are influenced by hundreds of internal and external factors. Still, there are a few small business trends worth noting and keeping an eye on.
Slow Grow…but at least it’s Growth
General business conditions may be improving, but business owners are still dealing with a lot of uncertainty – and there’s nothing worse than uncertainty when you’re trying to make decisions regarding the long-term health of your company.
The economy aside, uncertainty regarding implementation of the Affordable Care Act, immigration reform, tax rates, and other policy matters has many business owners stuck in a “treading water” kind of mentality. It appears that the possible pain and loss associated with making a bad move, in terms of investment, expansion, or hiring outweighs the potential gain.
So indecision is hampering growth. Some economists warn that a complete recovery, with activity and business confidence at pre-recession levels, may not be reached until 2017.
Increased Focus on Energy Costs
According to a Small Business Administration study, small companies (defined as havingfewer than 50 employees) pay more for energy, particularly for electricity and natural gas, than their large company counterparts.
The disparity is most noticeable in manufacturing sectors, where small companies pay 35% more than other, larger companies in the category. This makes for a severe competitive disadvantage. Electricity-buyinggroups or co-ops could help level the playing field.
Of course, transportation and distribution costs will vary as oil and gasoline prices fluctuate. Some analysts are predicting that oil prices – on a per barrel basis – will decline over the long term, but there are no guarantees.
In any case, energy costs have the potential to seriously impact your company’s bottom line, and should be constantly monitored.
A Move Away from Downtown
Big banks, high profile law firms, and certain service oriented businesses will always perceive the value of a big city address. That’s due to tradition, expectations, and a need to be somewhat centrally located in the area served.
Still, you may have noticed that many of your customers and competitors are gravitating toward less crowded suburbs, and are leaving the high costs associated with operating in a large city behind. This trend actually started in the mid-1980s, and appears to show no signs of letting up.
Detroit’s recent bankruptcy brought new attention to the logistical problems, legacy costs, and political sideshows that can make it difficult and expensive to run a company in a big city. Even worse, many are already asking which city might be next to go the Chapter 11 route.
Tax Reform
The case has been made thousands of times – including on this blog, on a couple occasions – thatthe U.S. tax code needs to be made more conducive to business and economic growth.
In most discussions, the needs of small business are separated from the demands of larger companies. It’s ironic that while everyone pays lip service to the importance of small companies and their role in the economy, their interests are generally considered secondary when it comes to tax matters.
But the cavalry may be on the way. Dan Danner, chief executive at the National Federation of Independent Businesses, is assembling a coalition of businesses, both large and small, that is encouraging Congress to work toward tax reform that focuses on the effective tax rates paid by companies – that is, the rate paid after all deductions, credits, and other allowances are taken. This would make for easier tax preparation and, perhaps, lower and fairer rates for small business owners.
There’s cause for optimism, but don’t expect too much, too soon. The tax reform movement may not get serious traction until 2014’s mid-term elections.
Continued Growth in Alternative Financing
You may have noticed that banks are getting a little less particular about which businesses they’ll lend to, but overall activity is still well below the loan volume of 2007 and 2008.
As small businesses continue to work toward healthy cash flow management, companies are tapping other sources of funding. Invoice factoring, purchase order financing, and credit card factoring are proven solutions for small companies that need access to cash quickly.
These alternative funding mechanisms are easy to arrange, costeffective, and do not add debt to a company’s balance sheet.
What small business trends are you monitoring? Leave a comment below.
Let MP Star Financial explain how invoice factoring can help you get a better handle on your company’s cash flow management. Call for more information. (800) 833-3765, extension 150.