5 Things Your Business Needs to Thrive Amid Economic and Political Uncertainty

Economic uncertainty continues as we prepare for the election. With inflation remaining high, the Federal Reserve Do not change interest rates The cut announced at the May meeting took interest rates to their highest in more than two decades, but it’s unclear whether another rate cut will occur before the end of 2024.

Recent Data Small business owners are feeling the effects of this inflation: Compared to just three months ago, 71% of 1,259 small business owners surveyed said inflationary pressures have increased on their business, and 49% said they have been forced to raise prices for goods and services during that time.

The best course of action for small businesses is to remain disciplined but flexible in their financial management going forward. In addition to rising borrowing costs, small businesses will need to prepare for continued inflation, higher fuel prices due to geopolitical uncertainty, and a tight labor market that could lead to higher wages.

Related: 4 Key Insights to Drive High-Performing Businesses Amid Economic Uncertainty

Until the situation stabilizes, as a small business owner, there are steps you can take to ensure your financial stability and set yourself up for growth.

5 steps to improve operational efficiency and control costs

Maintain disciplineControl your labor costs, reduce your inventory, and make sure you have cash on hand for unexpected events or to seize the opportunity to pay off high-interest loans if interest rates fall.

Debt review and restructuringTo prepare for interest rates eventually being lowered, evaluate your current loans and credit lines and look for opportunities to refinance or consolidate. Now is not the right time to lock in an interest rate for a long period of time. Be flexible because interest rates will fall; it’s just a question of when.

Maintain tight control over cash flowMany small businesses are reluctant to pressure customers for payment, but high accounts receivable can affect cash flow and leave you short of funds when you need them most. In times of high interest rates, cash flow management is even more important. Weather increases and decreases in cash needs by tightening or enforcing credit terms with customers to speed up payments, negotiating longer payment terms with suppliers, tightly controlling budgets, and taking out lines of credit that provide cash secured by accounts receivable. Liquidity is a buffer against the financial strain of rising borrowing costs.

Reduce unnecessary costsLook for areas where you can cut costs without impacting the quality of your products and services. This could include renegotiating contracts with suppliers, leveraging technology to improve efficiency, or making better use of office space.

Focus on customer retention. Depending on the industry, acquiring new customers 5 to 25 times more expensive Rather than maintaining what already exists. Research suggests A 5% increase in customer retention can increase profits by 25% to 95%. Bonus services, loyalty programs, and personalized communications are all cost-effective strategies for improving loyalty.

Related: 4 Key Insights to Drive High-Performing Businesses Amid Economic Uncertainty

Make the most of your fundraising

Funding will be more expensive in this environment, but don’t shy away from raising the capital you need. Be flexible and creative, and consider different options.

Find alternative sourcesTraditional bank financing is just one funding option. Specialized funding sources include asset-backed lending, invoice factoring, grants, crowdfunding, and angel investors. These specialized funding sources can give you more favorable and flexible terms, greater access to cash, and greater ability to adapt to your business needs.

Avoid rate fixingInterest rates will eventually come down. If a fixed rate is your only option, negotiate for the shortest term possible. Variable rate loans are usually cheaper than fixed rate loans, and you can refinance them if your credit situation improves.

No repayment penaltiesThey need to be able to quickly refinance their debt when interest rates fall and market conditions become more competitive.

Choose a lender that is also your business partnerTraditional banks are often reluctant to do business with small businesses because they consider them to be a greater risk than larger companies. Non-bank lenders are less likely to suffer from this short-sighted view. Many lenders specialize in certain areas and are happy to provide advice as well as loans. With a strong business plan, lenders may be able to turn into supportive partners.

Listen carefullyInterest rates have fluctuated significantly over the past few years and are likely to continue to do so in the future. Stay on top of economic trends and be prepared to take advantage of changes in the financing environment.

Today’s uncertain environment poses some of the most significant challenges for small and medium-sized businesses. Being resourceful and strategic in your financial and operational management will make your business stronger and more resilient in the long run.