The early years in the life of a small business can be precarious. Without the protection of large capital reserves, business owners often rely upon a healthy economy to drive strong sales and keep their company profitable.
The unfortunate reality, however, is that downturns in our economy are inevitable. And with the potential for economic trends to pose significant risk, it’s critical that small business owners remain aware of the current economic landscape. Maintaining a clear picture of the present and planning properly for the future can go a long way in keeping a business afloat during difficult times.
As SVP, Treasurer, for Atlantic Capital, Rogier Kamerling works to keep the bank and its clients informed about the larger picture of the global marketplace and how it intersects with more localized patterns across relevant business sectors. His knowledge and expertise help create a foundation for the bank to provide customers with the kind of sound, financially prudent advice that allows businesses to continue making smart decisions.
“Hiring and investment are two of the main strategic considerations that are likely influenced by the economic outlook,” Rogier says. “Do I buy another building? Do I invest in this piece of software that may cost money in the short term but streamline things and save me money down the road? You would make these kinds of decisions based on whether you think the economy was going to continue to expand or not.”
While this logic might seem self-evident, Rogier says the fallout following the housing market crisis of a decade ago shows how business owners can be surprised not only by the severity of a recession but also the length: “The economic downturn in 2007 to 2009 was traumatic, especially here in Georgia. The aftermath of dealing with the hangover from the recession dragged on for years, impacting economic activity. It’s possible you extended yourself, took on additional loans or mortgages. Maybe you hired additional employees. Your overhead is higher (which implies a higher break-even point of sales), and you’ve assumed that economic activity will continue to expand. When a downturn happens, this is how businesses fail.”
And although nobody can claim to predict the future with absolute certainty, there are a few markers or mileposts that might prove useful when trying to plan out the next phase of development. Initial jobless claims, corporate profit margins, and deteriorating standards in credit underwriting have all served in the past as early indicators of a recession, and the information is publicly available.
On the basis of these and other statistics, Rogier’s belief is that we are presently in the “sixth or seventh inning of our current economic cycle.” For him, this means that “the time we have before a downturn is likely in terms of years. For most businesses, it’s probably not the time to be extremely aggressive, unless your particular sector is one that stays relatively immune from the larger economy. Overall, if there are good opportunities for growth, without pushing your break-even point to a much higher level, it’s generally still appropriate to pursue those. The key is prudence.”
But there are reasons other than protection from a recession as to why it remains important to understand the current market. No business operates in a vacuum, and strategic planning depends upon a clear reading of relevant trends, no matter the stage of the business cycle. “Oftentimes with small businesses, what you have is a very focused business model and a very specific locality,” Rogier explains. “So the two key things when relating macroeconomics to your business are the location and the sector. You have to understand how a change in the larger economic picture translates into what you’re doing, since your sector and location may have very different dynamics to the overall economy.”
He adds, “The smaller the business, the more these local dynamics will be significant. If you have a sandwich shop, and a large corporation moves their headquarters next door, it’s quite likely that, if you hire additional staff to facilitate the lunchtime rush, you’re going to do very well, regardless of the broader economic developments. Whereas the larger you get and the more complex the organization, the more the average macro-picture will mean to you.”
So where does this leave business owners? “An important process is to translate how the current environment could pose challenges or present opportunities in the future. Economic trends, structural changes, risk management, financial markets, investor perception – all of these filter into making corporate financial decisions,” Rogier says. “It will look different depending on the size and scope of each business, and the process can be complex, but there are people who can help. At Atlantic Capital, current market developments and trends are concepts we’re very well-versed in.”
Evaluating the market and making the best decision for a business is rarely easy. At Atlantic Capital, we pride ourselves on helping business owners and financial decision-makers find the right way forward. The bank looks to combine knowledge and expertise with responsive communication, creating customer relationships built on trust and dependability.
Talk to us today and find out how Atlantic Capital can better meet your banking needs.