Business Consulting and the Crisis
Business is the exchange of goods or services for money. There are several types of businesses ranging from sole proprietorships to big multinational companies. All businesses share the same characteristics such as a need, a product, and a marketplace to make a profit. When properly managed, all businesses will create a positive cash flow. However, cash flow is only one aspect of business that should be considered. The other aspect, business finance, is equally important.
Business finance is a discipline of applied economics, which studies the economic, legal, organizational, and social factors faced by businesses. Business finance assesses certain economic factors influencing corporations, business organization, financial management, expansion, operation, and overall strategy with statistical analysis and mathematical techniques. A business’s performance is measured by its profitability; the better performing businesses usually pay higher dividends and stock prices. In addition to profitability, a company’s capital structure and credit ratings can also affect its ability to generate cash flow. For small businesses, financing is very important and a business’s ability to obtain needed funds is determined by the amount of credit available to it, its debt load, the lenders it has approached, and its credit rating.
Small business equity financing refers to the process of borrowing funds by a business from a private individual or a group of individuals or by a corporation to finance growth and expansion. Equity financing can be done in two ways – through an open or through a closed process. In an open equity financing, a business and its creditors approach different funding sources for loans. On the other hand, a closed equity nancing occurs when a business and its lenders combine their existing lines of credit into one loan.
Another branch of business economics that affects companies is managerial economics. Managerial economics studies how firms maximize their profit and minimize their risk. There are two schools of thought in this field – the efficiency school, which contends that entrepreneurs should maximize cost savings; and the effectiveness school, which argues that managers should spread costs over all aspects of production to maximize revenue. The efficiency school also suggests that consumers would be better off if businesses decreased their average number of hours worked. Econometrics, the study of production and distribution, is also considered in this area.
The economic theories and practices of business economics also impact entrepreneurs and small business owners. The analysis of distribution and prices and of businesses’ profit margins are essential parts of managerial economics. Entrepreneurs who are interested in starting up or growing a business should know about these theories and practices, as they can help them achieve their business goals.
One area of business economics that is not well-understood is social entrepreneurship. Entrepreneurship, as it relates to nonprofit organizations, is becoming an increasingly important practice in today’s economy. Many nonprofit organizations rely on a wide range of fundraising and marketing strategies to generate funds and attract donors and members. Effective business economic concepts such as social entrepreneurs can help nonprofit organizations maximize their revenue, while also providing a sense of purpose to members and donors.
Current business conditions, including the recent economic recession, have had a negative impact on small businesses throughout the country. However, many small businesses have either remained open during the economic turmoil or have attempted to adapt to the current crisis. In order for small businesses to grow and remain competitive, they must change their business practices to take advantage of new opportunities. To this end, many business entrepreneurs have turned to non-profit consulting firms to help them find ways to increase revenues, streamline their operations, increase their market share, and create new business opportunities.
Many business owners and managers have been reluctant to adopt a holistic approach to strategy and planning. This reluctance has placed many small businesses at a disadvantage in relation to their larger and more established competitors. The current crisis has created unique challenges unique to small businesses that need to be considered. If small businesses want to thrive in today’s business environment and retain their current customer base, they need to adopt a comprehensive business strategy that includes public relations, customer service excellence, quality product and service excellence, innovation, market development, financial management and strategic planning.