Managing a Small Business
How Economic Trends Affect Your Business
When diesel prices topped $4 a gallon in the Tampa Bay area last year, Joe Schembri, co-owner of the family-run U Fill or We Fill Dumpster Service, was spending more than $600 a week on gas for delivery trucks. So he was more than a little relieved when falling oil prices pushed the cost of diesel below $3 a gallon. "Falling gas prices have had a huge impact for us," Schembri says.
Some global trends represent opportunities for American entrepreneurs, while others might create situations that require a watchful eye. Here are some to watch:
Energy Prices Plummet
Oil prices have fallen precipitously over the last year, lowering operating costs for energy-dependent businesses like manufacturers or taxi services. Retail and leisure companies may benefit indirectly from the added change jangling in consumer pockets now that they're spending less at the pump. Lewis Harrison, who owns The Catskills B&B in Stamford, N.Y., says bookings at his bed-and-breakfast have doubled since last year, when he says, "High gas prices were killing my business."
Of course, you have to prepare for the possibility that gas prices may rise again. So while this may not be a permanent change in your business, it might be a good time to reinvest the higher profits to build the business while you can.
The Dollar Strengthens
The rising U.S. dollar has made it cheaper for companies to buy raw materials and manufactured parts in foreign countries, says Daniel Tessoni, an assistant professor of accounting in the Saunders College of Business at Rochester Institute of Technology. The garage owner who can warehouse foreign automobile parts, or the retailer who can stock up on household appliances, might be able to cut operating costs while the dollar is strong relative to other currencies.
On the other hand, U.S. businesses that sell products overseas may earn less if they are converting euros, pounds or yen into dollars. The federal government has been investing in export initiatives, including the Small Business Administration's STEP program, which is focused on increasing the number of U.S. small businesses that export and growing the value of exports by small businesses. Overall, U.S. exports are up for the fifth year in a row despite the strong dollar.
Low Interest Rates Linger
If an entrepreneur qualifies for a business loan, the costs associated with borrowing should be lower than in the past, Tessoni says. But he cautions that relatively low interest rates don't necessarily mean that your loan will be automatically approved. You'll still need to make the case for how you plan to invest the new capital in your business in a way that is likely to fuel future profits.
Tessoni says that one of the best ways to take advantage of low interest rates may be to extend credit to your customers on advantageous terms. "Offering better terms can entice customers to increase the amount of business they do with you," he says.
Consumers Go Green
Store shelves are brimming with products labeled as eco-friendly or organic. New buildings are rated for their energy efficiency. Even coffee shops and dry cleaners are getting into the act, promoting their efforts to be green.
Businesses that don't emphasize their green credentials may now be at a competitive disadvantage, says Michael Fetters, the Walter Carpenter Distinguished Professor at Babson College in Wellesley, Mass. "You'll be a laggard in the movement to be environmentally conscious if you don't demonstrate that you care about the environment," he says.
Business challenges can create opportunities. Showing that you're ahead of the pack can attract new customers, and environmentally-focused customers are often willing to pay a premium. For example, highlighting the local characteristics of your product might make it more attractive than a competing product that has been shipped across the country. "Entrepreneurs need to be and typically are good at recognizing which trends are business opportunities," Fetters says.
Marcia Layton Turner is a bestselling business writer, ghostwriter and author. She has authored, co-authored or ghostwritten more than 30 books on business and entrepreneurship.