Business owners: If you’re having trouble reading the U.S. economy, you’re not alone. On the one hand, the January 2023 jobs report revealed that the unemployment rate had fallen to 3.4%, its lowest level in 54 years. And inflation, while still a concern, has moderated in most sectors — staving off fears of a recession in the immediate future.
And yet concern remains about whether the economy will grow or suddenly stall. And the Fed is expected to continue raising interest rates, meaning the battle against inflation is far from won. What can you do, strategically, to neither under- nor overreact to this “interesting” situation? Sail a steady ship.
Save a little, spend a little
In a faltering economy, business owners tend to want to curb spending. Conversely, during boom times, companies are more apt to spend money to seize opportunities. Right now, the best approach may be a little of both.
Enlist employees to help cut expenses that don’t foster your business’s long-term success. Communicate regularly with staff about the need to curb spending and celebrate those who come up with effective cost-control measures.
That said, now isn’t the time to stop investing in new assets, people or technologies if they’re essential to your operations or could sharpen your company’s competitive edge.
A good exercise to undertake at least annually, if not quarterly, is to make a list of all expenses over the course of a year and separate them into three categories: “must have,” “nice to have” and “don’t need.” Ask your leadership team for input on which expenses should fall under each category.
Another idea for small to midsize businesses: Have a “check-signing social” in which you gather department managers to discuss major cash outlays while you sign checks or otherwise remit payments. An event like this lets managers know that you’re aware of their spending while giving them a chance to explain their rationale for the spending.
Know your suppliers
In tough economic times, businesses must keep a close eye on the stability of suppliers. If a major vendor goes under, you could be left in the lurch.
You might not have to worry quite as much about insolvencies in today’s environment, but don’t let your guard down. Nurturing good relationships with suppliers is particularly vital with supply chain issues continuing to trouble many industries. Maintain strong communication. Every so often, you may want to conduct a supplier audit to collect key data points regarding each one’s performance.
Watch out for fraud
No matter what the state of the economy, dishonest employees and outside criminals may seize the opportunity to commit fraud. Cash and asset misappropriation, as well as outright theft, are among the most prevalent types of “traditional” fraud. Cybercrimes are also increasingly common today. Hackers can steal from you or shut down your operations from hundreds or thousands of miles away.
Reduce typical fraud risks by implementing a solid system of internal accounting controls, such as segregating duties and requiring a second signature on checks over a certain amount. Also, if you’re hiring, conduct thorough background checks within legal parameters. Finally, invest time and money in cybersecurity measures to protect your systems and data.
Good news, bad news
The good news is the U.S. economy has generally rebounded well from the many changes and challenges of the pandemic. The bad news is, no one is completely sure where we’re headed.