The Debt Crisis and Your Business: What the new Debt Deal Means for Your Small Business


            Since last week’s blog, the new debt deal has been solidified and put into action by Congress and the President.  Life seems to have continued on as usual since the deal was officially resolved on Tuesday, despite numerous projections of economic meltdown, but what are the lasting repercussions?  Still now, the media continues to talk of the dire situation of the economy and the results of the delay in signing the debt deal.  It sounds so serious on the news and in the newspapers but what does it really mean for you and your business? 

 

            1. Consumer Spending has Decreased.  With the uncertainty over resolving the debt bill, consumers have really decreased their spending.  Uncertainty of any sort frequently affects consumers and makes them nervous about making purchases, particularly big or expensive purchases.  Combating this mentality can be difficult but not impossible.  Offering small discounts or bundling products or services together makes consumers feel like they are getting more bang for their buck, a big thing customers look for in a down economy.  Also, one of the tried and true ways of reassuring your customers is through increased customer service and loyalty programs.  Past customers are always a resource that you can’t get enough use out of.  If you don’t already have a loyalty program or some sort of mailing list for past customers, considering starting one now.  Reaching out to repeat customers makes them feel welcome and more comfortable spending with your business, even if it doesn’t feel like the right time to buy.  The bottom line is, a more personal shopping experience where your customers feel like they’re getting a good deal encourages consumers to do business with you whenever and under whatever circumstances.  Ensuring that your customers, both new and old, have a great experience when doing business with you separates your business from all the others, both in performance and profits.

 

            2. The Debt Bill Didn’t Really Solve the Debt Problem.  While the debt crisis may have solved a multitude of problems, it left many others untouched.  One such example is healthcare spending.  While federal spending on healthcare is set to increase, there have been no provisions made for where the money should come from.  This will undoubtedly lead to an increased cost of operating a business, one that many small business owners just can’t afford.  Cutting costs in a business can be as small as changing packaging to be more cost effective or as big as eliminating products or services that don’t generate much revenue in comparison with their production costs.  Another way to cut costs for operating your business is to register your business with the state such as incorporating to create a corporation or filing to be an LLC or partnership.  The tax benefits of a corporation, partnership (LP, LLP, etc.), and LLC (not to mention the other benefits such as limited personal liability for debt) are numerous and allow your business to save precious funds for more important things such as expansion or product development.    

 

            3. Interest Rates on Loans are Higher.  The possibility of the United States defaulting on its obligations caused many places that offer short-term loans to increase the interest rates on those loans.  This increase in the interest rate can take a while to go back down, causing many small business owners stress over taking out loans.  But sometimes, loans are a necessary part of running a business.  One way to avoid paying higher interest rates on loans is to seek out friends and family willing to loan your business money.  If this isn’t a practical option for your situation, credit cards can be a good choice for smaller amounts of money.  If you’re purchasing equipment, many manufacturers will provide you with an internal loan, instead of you having to go through a bank or other financial institution. If you are a repeat customer from a specific manufacturer, this may work especially well for you.  Finally, partners and investors are a great way to avoid higher interest rates if you need large amounts of money. 

 

            It’s not always possible to correct problems that are affecting your business since many come from the outside and aren’t related to anything you or your business are doing wrong.  It may seem like any uncertainty in an already shaky economy is the end of the world for your business but many problems can at least be mitigated or avoided entirely.  The important thing is not to get discouraged and to look at the effect it’s having on your company and how it can be addressed and adjusted for in your business plan.    

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