Why small business owners MUST track the financial markets

By Michelle van Schouwen

As I compose this article, U.S. and global stocks are making wild swings and investors are nervous. Small business owners should be nervous as well. In bad times and good, the U.S. and world financial markets hold a wealth (no pun intended) of information for what has become known colloquially as Main Street.

And make no mistake: Your small business can derive value from financial market ups AND downs.

-Interest rates are intertwined with the market. Whether you are considering a business loan or buying business real estate, your loan rates and even your appeal as a borrower are impacted by the financial markets. In the U.S., the Federal Reserve reduces or holds interest rates when it calculates that the economy is sluggish (often indicated by an incipient or ongoing “bear” or simply stagnant stock market), and raises them as markets soar or business profits are strong. When markets are very bad, lenders look at potential small business borrowers with an added degree of suspicion, afraid of later loan default or bankruptcy. Then again, when times are good, rates may become prohibitive for borrowers. Either way, it’s best to know where you stand before you talk to a bank.

-Your own business conditions can often be predicted by the stock market. In my own longtime marketing company, a falling market was a foreboding of lean times for our industry. Our client base, which included companies of all sizes, cut spending when times were tough, and marketing, however effective, was unfortunately one of the first budget items to be slashed. If your revenue depends on business customers, your fate will be impacted when they tighten purse strings.

-Consumer spending is also affected by the markets in several ways. A bear market generally brings sluggish hiring and increased layoffs. Companies tend to reduce or skip pay increases, cut benefits and forego bonuses. This means that consumer confidence and discretionary spending eventually goes down. If you run a discount store, car or computer repair shop or other business that people turn to when they are trying to save money, you may benefit.

Rich folks can continue spending unabated. But many restaurants and hotels, mid-scale clothing purveyors, car dealerships, appliance stores, vacation-related service providers, and other companies providing non-essential or “mid-market luxury” services tend to suffer. In lasting tough times, some people even postpone divorces, weddings, medical visits and elective procedures… and anything else that can be done tomorrow rather than today. If you cater to particular groups of consumers, you need to know what they are experiencing.

-Your business may need to tweak its offerings to survive long bear markets. In the case of my marketing company, we made every effort to offer “lean-times services” to worthwhile clients when markets were very bad for long periods, for example during 2009. We focused on helping clients find ways to affordably meet their most important (often immediate) goals, such as selling services to make equipment last longer or other “recession-proof” offerings. Helping clients get through tough times benefitted our company, too.

On the plus side, hiring is often easier when financial markets are lagging. When other companies are holding off on adding staff, more and sometimes better candidates are available for your smaller company to interview and hire, and desirable candidates may more readily accept the salary you can offer. (Just remember, they may also leave your company sooner if you pay them too little!)

-When the markets are tanking, continue to build your own retirement account as steadily as possible. Also, remember that the most successful investors in the world do not sell their stocks at the bottom of the market – they buy. Admittedly, it’s impossible to know when the bottom of a bear market will come, but continued, gradual investment tends to pay off in the long term. Dollar cost averaging investing is always a good strategy, in good markets and bad.

-Considering selling your business? Good buyers are more likely to purchase (and to pay more for) a company during up markets, when cash is easy to come by. Since a down cycle can last a few years, get your company ready for sale and begin the marketing process when times (and your own financial results) are rosiest.

In summary, watching financial markets rise is a lot more fun than seeing them fall. Understanding financial markets and predicting trends is complicated, but you can source abundant information and support to learn more. Most important, you can find wisdom – and to some extent opportunity – in every market. Take the opportunities as you can.

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Michelle van Schouwen enjoys an “Act 2” career as principal of Q5 Analytics, providing advocacy and communications for climate change mitigation and adaptation. See Q5analytics.org. For 32 years, Michelle was president of van Schouwen Associates, LLC (vSA), a B2B marketing company. In 2017, van Schouwen Associates was acquired by Six-Point Creative Works, Inc. of Springfield, MA.

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