Is the Economy Losing Steam? Say "recession" around most homebased entrepreneurs, and they break out in a sweat. But things aren't as bad as they seem.
If you asked a fellow homebased business owner what the largestthreat to his business is, he might say a recession. A sustainedeconomic downturn, he'd say, will cause companies to turn offthe money spigot, lay off employees, and hunker down until thefinancial clouds part on the economy and skies are sunny again.
Maybe...but more likely, maybe not. It's important to notethat we're not in a recession, so worrying about it is a wasteof time. In fact, the economy may even grow in 2001, albeit slowly.According to Merrill Lynch chief economist Bruce Steinberg, theglobal gross domestic product (GDP) is expected to rise to 3.2percent, which is down from 2000 but stronger than in 1998 and1999. In addition, the Fed has cut the federal funds rate to 5.5percent, making the risk of recession low.
And even if we do enter a recession, many experts say it will bethin and short and that the economy will rebound quickly. PhilipJefferson, an economics professor at Swarthmore College inSwarthmore, Pennsylvania, says the nation is equipped for a speedyrecovery due to an increasingly versatile and highly skilled workforce that's already well-acquainted with the processes ofacquiring skills, meeting deadlines, staying on schedule andlearning. These skills, along with the experience of having had ajob in the recent past, will empower workers who might temporarilylose a job in the next recession, according to Jefferson.Workers' willingness and ability to retrain and move to areaswhere jobs are more plentiful can potentially facilitate a fasterrecovery from a recession.
For SOHOs with some experience going solo in recent years and astable of clients, the best strategy for staving off tough economictimes is to know when things are cooling off. That doesn't meanjust recognizing that the NASDAQ is in steep decline, but alsounderstanding more subtle market nuances.
Signs of a slowdown might include less lavish holiday parties,lower or no bonus checks, and the elimination of cash bonuses forfinding new hires at corporate offices. (Check with your salariedfriends on those issues, or simply keep up with the businesssection of your newspaper.)
More directly relevant to SOHOs is the possibility that workwill actually increase as the economy slows. As companies slashovertime and stop filling employee vacancies, many will turn tooutsourcing to fill those productivity gaps. Many SOHOs in theservice sector can expect an increase in assignments to make up forunfilled vacancies.
It's also a good idea to beef up your cash reserve accountsto help weather any economic storms. That means budgeting andcutting back, but that's practically painless and a small priceto pay to maintain your independence. For some homebased businessowners, building a cash reserve may come at the expense of swifterbusiness expansion. But the alternatives-taking out a loan,dipping into personal net worth or shutting down entirely-arefar less palatable.
If you're in the retail sector, it's also smart tostreamline your business operations to get a better gauge of howyour business is doing. One way to do that is equip your computerwith point-of-sale (POS) software that can provide you with a wholenew set of management tools. A good sales software package can helpyou swiftly determine which are your best-selling products, howquickly inventory is turning over and how much of each item isneeded for future demands. POS software also helps you avoidlocking up cash in slow-moving goods, an extremely important goalduring a recession.
One mistake some SOHOs make in tough economic times is to cutprices. While that sounds good in theory, your customers will stillvalue a job well-done over a lower price. Instead of cuttingprices, increase your value and reward good customers. Take acourse and learn more about your customers' businesses. Thenput your newfound knowledge to work. For your best customers, startsending thank-you notes or buying them lunch more often. Peoplestill appreciate the human touch, especially when they're a bitnervous about hanging on to their own jobs.
Remember, your best asset as a homebased entrepreneur is you. Bycranking up the customer service dial and stashing some money awayuntil the tough times are over, any SOHO worth his or her saltshould easily survive a soft economy.
Brian O'Connell is a Framingham, Massachusetts, freelancebusiness writer. His most recent book, B2B.com (Bob AdamsMedia), is available this September. His earlier books,Generation E: How Young Entrepreneurs are Changing the CorporateLandscape and The 401(k) Millionaire, are available inbookstores. A frequent contributor to many national businessmagazines, he can be reached at Bwrite111@aol.com.
