Is America headed for a recession? Some economists predict that the United States could enter into a recession within the next two years, based solely on slowing economic activity, but there are some other indicators that could point to impending financial turbulence looming on the horizon.
While recessions are cyclical and happen on average once every 8 years, they don’t happen randomly they don’t necessarily follow a set schedule.
David Rosenberg, chief economist at Gluskin Sheff has pointed out that since 1950 there have been 13 cycles when the Federal Reserve tightened interest rates. Of those movements, 10 of them ended in recession. If the Fed hikes rates four more times in the coming 12 months, it could be enough to push the country into yet another recession.
Current economic indicators also reflect certain other triggers that could push the country into a recession. President Trump and the Republicans haven’t managed to pass any of the fiscal stimulus measures the country hoped to see and the economy hasn’t grown as well as was anticipated prior to the election.
There is also the problem that the national debt of the United States now exceeds 106% of its total gross domestic product (GDP). By comparison, the UK’s debt-to-GDP ratio is at 89.3%, Canada’s sits at 92.3%, China’s is at 46.2% and even Australia’s ratio is at 41.1%.
The US debt-to-GDP ratio in 2010 was just 91.4% and in 2008 was only 67.7%. The current ratio of 106.1% indicates that government spending now exceeds revenues. If the current Trump administration hopes to avoid entering into a technical recession, it may need to tighten spending moving forward into 2018.
While nobody enjoys the thought of a looming recession, the signs all point to the potential for financial turbulence coming our way.
Yet savvy business owners can use the recent reports and statistics to their advantage. The key to surviving – and thriving – during a recession is to take steps to protect your business before an economic downturn hits our shores.
Here are some tips that can help any business owner remain profitable under almost any economic circumstances.
Tip 1: Tighten Operating Costs
When business is booming it’s easy to increase spending. However, when the treat of a recession looms closer many business owners react by slashing their spending budgets. Some will cut staff in the hopes of reducing wages expenses, while others may think about tightening advertising costs.
Rather than trimming the necessities, work on other areas where you might tighten operating costs. During lean economic times, it’s likely your suppliers will also be seeking ways to keep their own business cash flows stable, so it’s an ideal time to renegotiate agreements with suppliers.
Discuss whether your utilities, phone, or internet providers are willing to renegotiate better terms on the services they offer. Call your bank and ask whether they’ll reconsider the interest you pay on any business overdrafts or outstanding loans. You’ll be surprised how much you can trim off your business expenses without sacrificing the current services you already receive.
Tip 2: Review Inventory Management
Take the time to review your current inventory management practices. There may be options available that could reduce your inventory costs without sacrificing product quality.
Be realistic about how much stock you need to hold on hand at any time. Shop around and determine whether another supplier may offer the precise same items at a more competitive cost. Tightening your inventory management controls can help reign in your expenses and keep business operating optimally.
Tip 3: Develop Innovative Practices
Exploring and developing innovative business practices could be the key to adapting successful to changing market conditions. Discuss whether your employees have any ideas that could streamline business processes or lead to more efficient ways of working.
Review whether advances in new technology could help increase efficiency, reduce operating costs and make your business more competitive overall.
Tip 4: Explore New Markets
Many business owners rely on local trade to generate a large percentage of their business revenue. However, there may be opportunities available to expand your market reach and extend your offerings to a broader audience.
The internet provides a viable way for almost any business to explore new markets outside of the immediate local vicinity. In fact, recent statistics reveal that 79% of Americans have made an online purchase, indicating that more consumers are willing to shop for the products or services they want online.
If you haven’t done so already, consider whether your current business model might benefit by integrating an online storefront option that operates alongside your existing bricks-and-mortar outlet. Retailers have the advantage of creating an online storefront that allows their customers to browse products and make purchases from the comfort of their own homes.
Tip 5: Invest in Training
Many business owners immediately try to trim their operating costs by cutting back on staff expenses and wages costs. Yet a business is only as strong as the people within it.
Rather than cutting back on employees, consider the benefits of investing in staff training. When you improve and expand training, your existing employees become even more valuable.
Cross-skilled employees are capable of completing a wider variety of tasks within the business, which ultimately saves money on hiring and training new team members. You also create diversity in your staff member’s working day, which can help boost morale and improve productivity overall.
Tip 6: Integrate Value-Added Services
When times get tough, many business owners try to reduce prices in an effort to attract new customers and increase sales. The problem with cutting prices is that you also risk reducing your profit margins.
Rather than make sweeping changes to keep revenue flowing, think about ways to add value to your existing products or services. Many of your customers may appreciate the added extras and be willing to spend a little more in order to take advantage of the additional perceived value you create from your offer.
Tip 7: Explore New Marketing Opportunities
When times are lean it’s common for many business owners to immediately cut their marketing budget in the hopes of reducing costs. However, lean times are when your business needs marketing the most.
Review your existing marketing strategies and be realistic about which channels are providing the best results. In some cases, your advertising budget could be stretched further by integrating some online marketing efforts with more traditional offline advertising options.
There are plenty of free or inexpensive online marketing options that allow you to promote your business directly to people within your target audience. Incorporate your business’s social media channels into your marketing strategies to help increase your message reach.
If the economists’ predictions become a reality in the next year or so, don’t panic. Take steps to protect your business against an economic downturn and you’ll find it much easier to ride through the recession unscathed.
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