The storm clouds are gathering. Gas prices are rising, home sales are slowing, and consumers don't see good times ahead. The Conference Board said this week that its expectations index, measuring outlook over the next six months, slipped to 86.9 this month from 93.8. But ever-cheery small businesses are seeing the sunlight between the clouds.
That's because they are in the best position to weather coming economic showers, says Wayne Best, a senior vice president of business and economic analysis at Visa USA. "The formation of small business is very important in the economy overall," says Best about companies with less than $25 million in annual revenue. "Because of their innovativeness and flexibility, they are able to flourish in an uncertain economy."
The high number of people starting businesses after being laid off kept the 2001 recession mild, says Best. Those new businesses had spillover effects as they grew. Over the past five years, half of new job growth came from small companies, says Best, helping keep unemployment levels low.
Starting a small company is generally easier in the United States than elsewhere, but low interest rates and other factors are helping boost their growth during troubled times. "With the advent of technology, small businesses can form much easier and be more connected," he explains. "Now you have the ability to form a small business based on nothing more than a good idea."
Best says that small companies selling services are in the best position to navigate a slowdown. Workers may not shell out for fancy cars or new homes. But as they are stretched for time, they will keep eating out and paying for other timesaving conveniences. Education and healthcare are other fast-growing sectors.
Regardless of what they sell, small companies can take advantage of their nimbleness amid economic uncertainty. "As the economy picks up or slows down, small business can move on a dime," says Best.
He suggests that company owners stay financially flexible by using different credit cards to better manage cash flow at a time when consumers might delay payments. He also suggests shying away from long-term leases now. Interest rates and prices may still go down, giving buyers better deals in the future.
Still, interest rates are low enough that companies can invest in upgrading their technology to boost productivity. That's especially important in a tight labor market where companies need to learn to do more with fewer people.
And to keep those employees from job hopping, small-business owners need to make sure workers are happy and share their enthusiasm with potential recruits. "It's that type of optimism that will continue to drive the economy forward," Best says.