Cut Back? Index Points To Small Business Optimism Instead.

Are businesses cutting back? According to the middle-market business index for Q2 2022, the answer is “no.”

Findings from the survey of mid-sized businesses, conducted quarterly by RSM in partnership with the U.S. Chamber of Commerce, showed that businesses are taking an optimistic approach to the current business climate: 58% of businesses expect gross revenues to improve through the next 6 months and 56% expect net earnings to do the same. Additionally, 42% spent more on capital expenditures and 51% expect to do the same in the next 6 months.

Economist Max Wolff, who spoke with Lendio in May 2022, indicated at the time that taking advantage of the growth opportunities in current economic conditions could give a Main Street business a leg up on the competition over the long term. “If you can put together a compelling business plan, it makes a lot of sense to grow. And the reasons are economies of scale and pricing power. If you’re bigger in the market, you can sometimes get better pricing from your suppliers. You can also pass along more of your price,” said Wolff. 

Vijay Govindarajan and Anup Srivastava writing in Harvard Business Review in May 2022 also noted: “A recession is the best time to acquire resources for the forthcoming expansion, all while your competitors are cutting back. The biggest and most important resource — talent — is more readily available now than during an expansionary phase.” 

If a recession is on the horizon, Govindarajan, a Professor at Dartmouth College’s School of Business, and Srivastava, an associate professor at Haskayne School of Business at the University of Calgary, indicated that it could bring two other growth opportunities too: recessions are an ideal time for small businesses to “acquire companies and buy assets at fire-sale prices,” and to lure “dissatisfied customers from competitors as they cut down on customer services.”

Financing Needs and the Business Lifecycle

Events like an economic downturn may feel like they usher in an all-new category of expenses for small- and medium-sized business, although business expenses continually evolve through the life of any business. For example, a growth-stage business may require capital to jump on a once-in-a-lifetime opportunity; a startup, however, may have a greater need to apply capital to expenses directly associated with getting the word out and building awareness. You can learn more about how business lifecycle stages relate to expenses in Small Business Lifecycle: Events That Trigger A Need For Funds. 

Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.