Businesses Benefit When The Economy Is In A Recession

Small businesses throughout the nation are facing an ultimate threat. Businesses with less than 500 employees constitute half of American private employment and a record 43.5 percent of overall GDP. Yet even though these small companies are a crucial component of the U.S. economy, often financially frail, they also are often financially precarious, with very little cash on hand to buffer a major financial blow. This threat is becoming more acute because many businesses have accumulated enormous debts that exceed the value of their actual assets.

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Businesses Benefit When The Economy Is In A Recession

Small businesses throughout the nation are facing an ultimate threat. Businesses with less than 500 employees constitute half of American private employment and a record 43.5 percent of overall GDP. Yet even though these small companies are a crucial component of the U.S. economy, often financially frail, they also are often financially precarious, with very little cash on hand to buffer a major financial blow. This threat is becoming more acute because many businesses have accumulated enormous debts that exceed the value of their actual assets.

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The crisis has reached its zenith in part because smaller businesses cannot obtain the financing they need from traditional sources such as banks and credit unions. In addition, many entrepreneurs no longer can count on tax benefits and the tools they once used to attract business with generous tax write-offs and state and local governments’ subsidies that are available to larger businesses. And while many businesses have downsized, some have decided to outsource work to other countries with cheaper labor and lower salaries. All have felt the pinch of the economic crisis, and more are poised to do so as businesses grapple with dwindling sales and customers’ fears about the direction the economy is going.

If left unchecked, the current situation will worsen. As consumers continue to get out of debt, businesses will experience a difficult time attracting new customers, decreasing profits, and causing operating problems. Consumer confidence suffers as retailers run out of stock and default on debt payments. In addition, companies that have already run up large debts may be unable to refinance to restructure their debt obligations and reduce their costs. All have become aware of the potential financial ruin that will result if they don’t make financial changes.

Fortunately, the current economic and business climate is already being seen in the news. Major retailers, including Wal-Mart and Target, have indicated major losses in the past year due to the troubled economy. Even smaller companies such as restaurants, hotels and apartment complexes are feeling the pressure from the crisis. The potential for a consumer pandemic is real, and the effects could last for years to come.

A potential pandemic is already looming. As banks, credit card companies and financial management firms to take a closer look at their portfolios and consider restructuring options for their businesses, the number of distressed businesses will grow. “We are seeing the early indicators of a customer pandemic,” said Ed Yarden, chief executive of Yarden Interiors, a Miami-based chain of luxury condos. “We have had customers calling us in crisis mode ever since the recession started. That’s really the only way you can describe it.” Some small business experts blame the crisis on companies’ failure to plan, while others believe small business owners simply failed to make the tough choices necessary to survive.

Yarden believes the answer lies in using technology to help business owners to stay abreast of the changing business landscape. He said that many of the best new technologies designed to provide employees with fast information and increase collaboration among coworkers are also great tools for helping small businesses thrive during times of stress. “The sharing economy” is all about connecting people and enabling them to work more efficiently and creatively together,” he said. The sharing economy recognizes that business owners have become entrepreneurs, and the resulting flexibility is vital to business owners looking to reduce their risk, compete successfully and succeed.

“A small business administration is just what a business needs right now,” said Yarden. “We’re in a time when more companies than ever are looking for assistance. Most of them are looking for guidance on how to reduce their dependence on outside financing, which makes debt financing increasingly harder for them to manage. There is some good news: that dependency is rapidly declining and borrowing costs are gradually coming down. That means there are more opportunities out there.”

As business professionals and managers understand the value of working with an agency that understands the unique aspects of today’s economy, businesses can work to strengthen themselves without having to suffer from the perils of defaulting on their loans or other financial obligations. Yarden is right when he says, “There is no time like the present.” The key is for businesses to take advantage of these opportunities now, while prices and risk are still low, before other firms catch up and do the same. The recession and the economic downturn have already proven that it is easier for banks to recoup the money they lent to businesses in distress today, than it was just a few short years ago. This means there is plenty of time for businesses to work with a small business administration expert to strengthen their future, now that they know it is possible to get help.

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