Economic downturns can be devastating for businesses. Covid-19 claimed many thousands of local shops and restaurants, but it doesn’t take a pandemic to do a business in. Without careful planning and a robust understanding of finance, it’s easy to make small mistakes that can have enormous ramifications.
In this article, we take a look at how understanding economics can help get your business through downturns.
Micro Versus Macro Economics
Microeconomics refers to the economic factors that pertain to a single business or community. Macroeconomics, by contrast, refers to financial situations that are occurring on a global scale. This could include things like a viral outbreak, or a natural disaster that shuts down major supply chain lines.
Micro and macroeconomics don’t necessarily exist in a bubble. Small businesses all play their part in the greater thing that is “macroeconomics”.
Understanding both can help play a role in the success of your business, particularly during periods of economic downturn.
Why? Even though your business may not be directly impacted by every natural disaster or economic downturn, it may feel subtle effects. A product that is suddenly harder to stock. A small but discernable downward shift in sales.
With a firm grasp of economics, you are better equipped to understand these situations and make the best of them.
Plan for Downtimes
One of the natural benefits of understanding economics is that it helps you cultivate a highly developed plan for dealing with economic downturns.
Most experts agree that our economy is headed into a recession. Even without the official perimeters being met, however, things aren’t very good.
Inflation is up, spending is down, and businesses are hurting as a result. It’s never too late for a good plan, but you don’t want to be figuring yours out as you watch the words “Recession hits!” scrawl across your TV screen (assuming you’re the last person who still gets the news from the television).
A person who understands economics will be ready for financial downturns before they hit. Planning ahead of time makes it easier to know what to do at the moment. A good strategy not only means you have what you need to weather the storm, but also that you won’t feel pressured to make hasty decisions.
Business Analyst Skills
Business analysis is a career in its own right. You don’t need to get a special degree just to run your own business — although some formal training can be very valuable. However, it can help to understand what goes into analyzing a business, particularly during difficult periods of time.
A business analyst takes an objective big-picture look at what a business is doing right and wrong so that they can help optimize processes. That’s useful at any point but during difficult times it can mean the difference between success and failure.
It’s hard to look at your own business objectively but even a little bit of knowledge can go a long way.
Eliminate the Big Misses
Once your business begins to struggle it’s easy to panic and make rash decisions. You want to cut costs anywhere you can. That’s sensible, right? If your business is losing money, that should be reflected in your financial behavior.
Here’s the deal: businesses that look like they are struggling are usually destined to struggle more. You’ve seen it before. A restaurant falls on hard times and the portion sizes shrink to wartime rations. A shop hits a hard spot and all of a sudden starts looking grubby. It’s sad but at the same time… you don’t really want to go there, do you?
With a little economic know-how, you can figure out how to make financial decisions that increase your liquidity without diminishing your overall quality of service.
Learning the Ropes
There are many ways you can learn more about economics. Depending on how serious you are about this you can:
Go back to school
Of course, one of the benefits of owning your own business is that you don’t have to bend over backward trying to impress your employer with your background. However, there are benefits to a degree in business that extends beyond merely increasing your employment prospects.
Things change in business. Refreshing your skills with a new degree can improve your understanding of economics while also teaching you valuable skills as well such as data analysis.
Skill boot camp
Of course, getting a full degree may not appeal to everyone. It’s expensive, time-consuming, and possibly more comprehensive than you need. Skill boot camps offer a more approachable alternative, providing students with a concentrated dose of information that gets doled out over the course of six to eight weeks.
It won’t be as comprehensive as a full degree but it will equip you with useful knowledge that can be applied directly to your business.
Remember, refreshing your business and economic skills isn’t a one-time job. To really stay on top of things, consider brushing up every few years. Not only will this prepare you for disasters, but it will also make it easier to thrive when the situation allows for it.
Making Economic Know How to Work for You
Don’t have time to hit the books? There are still ways to navigate hard times that don’t involve getting a degree in economics. There are plenty of professionals who can help get you through these hard times. We already discussed the benefits of consulting a business analyst.
There are also financial advisors, accountants, and even financial therapists — people who help with the logistical and emotional challenges of economic hardship.
Financial struggles have a way of feeling more oppressive and menacing than they really are. While there’s denying that the stakes are high, that doesn’t mean there isn’t a way out. The key is to remain level-headed enough to make the right choices.