Just when you thought the worst was over.
Yesterday's 600-point plunge in the Dow Jones Industrial Average has businesses owners across the country scrambling. Some are moving around their retirement funds and drawing down their credit lines. Most of them, however, are holding tight and hoping for a better performance in the markets today.
The stock market's dismal performance may not directly affect small businesses that don't operate within the financial industry, but it does hit their customers. And if shoppers aren't feeling very rich, you can guarantee that spending overall will ease, says Peter S. Cohan, the president of Peter S. Cohan & Associates, a management consulting and venture capital firm in Marlborough, Mass.
"Tack on reduced government spending and this is could be the one-two-punch that sends the economy into negative territory," says Cohan who wrote Capital Rising: How Capital Flows Are Changing Business Systems All Over the World (Palgrave Macmillan, 2010).
Rohit Arora, the co-founder and CEO New York's Biz2Credit, an online credit platform that connects small businesses with credit options, was even less optimistic. When the ratings agency Standard & Poor's downgraded the U.S.'s debt from AAA to AA+ last Friday, the government's lending costs jumped. That move will push up small business lending rates, as the price banks pay to borrow from the federal government will also rise, he says.
What's more, if the nation falls back into recession, the government -- thanks to its promise cut spending and reduce the nation's debt -- won't be able to put forward new stimulus measures. "The payroll tax cut and other incentives that the government had considered renewing will [likely] go away," says Arora.
Such prospects are no doubt rankling still struggling small business owners. For Irene Firmat of Full Sail Brewing Company, the uncertainty is the worst. "Economic uncertainty and rampant unemployment is scary," says Firmat, who founded the brewery in Hood River, Ore., in 1987. "We have a pub that does a lot of volume from people in Oregon. But we also get many people coming from all over the U.S.; they have to pay for gas or airlines tickets," she says. "If you're not scared you shouldn't be a business owner."
Although the extent of the market's decline will largely determine the level of damage the U.S. debt downgrade has wreaked, some potential bright sides may shine through, says Arora. Oil and commodities prices could remain subdued if the market's turmoil spreads, he says. In addition, if the dollar continues to decline, exporting abroad could become increasingly attractive, as U.S. products and services become cheaper to foreign buyers.
Want to attempt some contingency planning?
See: What a U.S. Default Might Mean for Small Businesses.
Want to stage a business comeback and prosper in good times and bad?
See: Shift Your Mindset, Save Your Business.
How about reduce stress?
See: How to Stop Stress in 60 Seconds or Less.
How might your business be affected by the latest stock market rout? Let us know in the comments section.
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Comments:
Small businesses have always found a way to survive, and this recession will be no exception.
The stimulus didn't do squat and we all know it, other than for the auto maker's. Small business's got completely shut out of that part of the recovery. Unemployment is, to the entrepreneur, a fact of life we all have to deal with. But what's really getting everyone steam'ed' is the fact that the banks are sitting on God only knows how much cash money, courtesy of the bailouts, on their balance sheet's and not putting it back out on the street's for expansion, marketing, R&D, raw material's purchasing etc.. At some point, and with the NYSE bouncing around like a hooker on a trampoline, someone in DC, who really knows what money is suppossed to be used for, is gonna start asking a lot, and I mean A LOT, of very uncomfortable questions, like "If you've got so much cash on hand, maybe it's time to start repaying the FDIC's loan to you and the sub's you recently merged with or took over". Same can be said for those cities and towns that have their account's with the local bank's. Someone on those town or city council's are gonna start asking alot of very embarassing question's, like "If your responsible for the maintaining the account's, why isin't the money being used for development or lending to local construction companies for the re-building of roads and bridges ?" Writing is on the wall folk's. It's only a matter of time before someone start asking questions and starts following the money trail. Come to think of it, isin't that what auditor's do ?