Batten down the hatches: Fine tune your small business plan for any economic environment

In recognition of the more than 33 million small businesses in the U.S. and the nearly half of the American workforce they employ‡, we are sharing helpful best practices to fine tune your business plan to weather economic shifts and fuel stability.

Key takeaways:

• Strategically assess your business lending options, both now and for the future, including reviewing consolidation and conversion opportunities
• Take a close look at your business and personal credit and taxes to ensure tidy documentation and processes
• Be honest with your financial partners
• Improve income by evaluating equipment and assets, reviewing inventory, re-pricing and buttoning up your accounts payable and receivable
• Adapt to the softening labor market by investing in your loyal employees and holding steady in your employment retention strategies

Responsibly manage your business debt

Interest rate changes have significant impact on business lending. To effectively manage your debt, consider these financial strategies before applying for a business loan:

• Convert floating debt. Consider converting any floating rate debt to fixed rate debt, which shifts the mindset from short-term financing to a longer-term solution. Although many borrowers use their investment portfolio as a natural hedge for floating rate debt, it may still make sense to lock in a low, fixed rate now for any variable rate debt you may have.
• Consolidate debt. If your company has extensive overhead costs with bills and outstanding balances, debt consolidation could be a smart strategy to move existing debt into one streamlined payment. Debt consolidation can potentially provide a longer repayment period and/or lower interest rate – both of which can help improve available liquidity.
• Clean up your credit and tax liens. A tax lien is the government’s legal claim against your property when you fail to pay a tax debt. Make sure your credit and tax debt are up to date and tidy to ensure you’re getting the best rates available. This is an important consideration for both your business finances and personal finances because both are reviewed to determine your creditworthiness.
• Transition from alternative lending sources to conventional. If your business has alternative financing on the balance sheet, but you’ve been able to stabilize your profits and expenses, now may be the right time to convert your debt to more traditional loans and lending. Speak with your business banker to talk through the options and whether it makes sense for your company.
• Be honest with your banker. This may seem obvious, but you’d be surprised how many business owners inaccurately fill out loan applications whether intentionally or inadvertently. Filing for bankruptcy or having a tax lien is not an automatic disqualifier in the application process. With that in mind, it’s better for your relationship with your banker to be transparent about your situation to better problem-solve together.

Strategies to improve income

If cash flow is top of mind, take inventory of your equipment and see if there is anything old or outdated that can be sold, refinanced or salvaged. Also, spend time reviewing your assets to determine how they can help the business work smarter and improve liquidity.

If your business is inventory-based, assess your supply regularly and consider buying in bulk or shopping around to get the best purchase price. Another option is to restructure your pricing to align with the current market, inflation and competitors. However, be wary of aggressive price increases to avoid upsetting your current customer base.

Another way to improve cash flow is to streamline your accounts payable and accounts receivable processes. Review timing, steps and ways to reduce your business bank account churn. One example of a strategy to implement is building in incentives for your clients to pay on time or early.

Finally, take advantage of and embrace advancements in technology that can help further reduce costs without devaluing your goods or services.

Combat ongoing supply chain and tariff challenges

Businesses nationwide are being impacted by supply chain disruptions and continued tariff unpredictability with more than 1.3 million U.S. small businesses‡ being involved with global exports. These challenges can make small business owners more vulnerable to increased production costs, reduced profit margins, shipping delays, hiring limitations, loss of competitive edge and a hesitant customer base. Consumers, just like businesses, are feeling the strain of economic uncertainty and could begin to turn sour on businesses who pass price increases onto them.

To combat these headwinds, consider diversifying where you’re importing your resources, especially if they are currently coming from high-tariffed countries, re-evaluating your current pricing model and finding ways to improve overall efficiency. Additionally, take time to sit down with your financial professional as they can help you course correct your budget, stick to your long-term investment plans, leverage impactful financial tools and help safeguard your business’ integrity. You’re not in this alone.

Be aware of the softening labor market

As the labor market begins to soften after historic unemployment lows, small business owners can start to reel back hiring efforts – unless absolutely necessary. With the current unemployment rate in the U.S. sitting at 4.1%‡, a 0.6% increase since last year, business owners may see less competition for talent and decreased pressure in altering wages or benefits. However, a softening labor market can indicate a cooling down of consumer spending activity and general economic uncertainty, so business owners might find themselves leaning on loyal employees now more than ever.

With this in mind, business owners need to stay true to their employment retention strategies to ensure their employees feel supported and remain excited to stick with them through economic hurdles.

As you continue to navigate today’s labor market, here are some financial considerations to keep top of mind:

• Invest in and strengthen your current team through talent development, wage reviews, internal promotions and hires to help retain your current workforce.
• Recognize that hiring costs have increased and plan accordingly. If raises and promotions are not in the financial plan, focus on benefits to make up any difference in salary or hourly pay.
• Embrace the hybrid home-office schedule and provide flexible work environments. Consider how the work from home shift can help you cut costs if your industry allows for virtual or asynchronous work.

Running a small business requires an immense amount of discipline and perseverance, even in the best economic conditions. In today’s volatile environment, this is more important than ever. As a business owner, you must be willing to adapt to any changes that come your way and pivot to ensure your business is successful. Strategize and plan well by having a strong relationship with your banking partner, managing your debt, improving cash flow, finding alternative financing options and adjusting to the changing labor market.

Our small business specialists are ready to help you with your small business financial needs through guidance, support and service. We also offer a series of online tutorials to help your business succeed. We’re always adding new topics that we believe can help you build and manage your business. Explore our small business courses.