Small business owners often get caught up in the minutiae of day today decision making. They often neglect to consider the long-term outlook for the economy, which is at least as important. You don’t want to make this mistake as an entrepreneur.
Many young people first get a glimpse of how the economy works by learning how the stock market works in the most basic of terms. Obviously, the process of running a business (and the overall health of the economy) is independent of the stock market sometimes, but many of the same principles still apply; and from there many young entrepreneurs are born. Yet they forget the underpinnings of economic indicators valued in real time by the markets.
Around 20 years ago, William O’Neill wrote: How to Make Money in Stocks. O’Neill presented a wealth of information on stock market investing, which includes eight major factors to analyze. The final factor that he discussed focused on economic indicators.
He made a very compelling argument that macro-economic indicators were more important than all of the other factors he covered put together. O’Neill wrote that if an investor got all of the other points correct and the economic indicators wrong, then they would still be wrong 80% of the time.
Small business owners should follow a similar mindset. Economic indicators play a vital role in the future of your company. You need to make important decisions with these variables in mind.
You can have the smartest social media marketing strategy in the world, the best product and the most talented employees. Unfortunately, if you fail to gauge the direction of the general economy accurately, then you might make some disastrous decisions that will cement the demise of your business.
There are a number of economic indicators that every business owner should monitor. Some of them are listed below. You can use companies like Renmac to monitor them.
Business owner optimism
Back in 2010, Carol Tice, owner of Make a Living Writing, wrote an article for Entrepreneur.com about the most important economic indicator that every business owner should watch. She said that this indicator is business owner confidence.
Case is an entrepreneur herself, rather than an economist, so it might be tempting to take her opinion with a grain of salt. However, I tend to agree with her point, nonetheless. If small business owner optimism is down, then that indicates that businesses are less likely to expand. This means companies need to be more cautious about allocating more of their own capital to expansion.
The rationale behind this is particularly clear from the standpoint of a B2B company. If other companies are less likely to expand, then they are less likely to depend on your own services or products. You need to be careful about making poor investments to reach it a shrinking market share.
There are plenty of reasons the unemployment rate is important to analyze. If your target customer base is less likely to be employed, then they will obviously be less likely to purchase your products. You need to keep this in mind when ordering inventory and making staffing decisions. On a positive note, you might have an easier time finding qualified employees that are desperate for work, so it can be a good time to consider replacing some of your lower performing employees.
Companies with a high elasticity of demand are especially vulnerable. Restaurants need to pay close attention to the unemployment rate, because they are most likely to be hit if it rises. In this situation, they will need to assign fewer people do payroll and keep less inventory on hand to minimize costs to whether the slow.
In June, American Express published an insightful article on the impact oil prices have on small businesses. Rising oil prices can affect everything from your employer commute times to manufacturing costs and consumer demand for your products. The biggest issue for most businesses is that customers will have less disposable income as oil prices rise, which can put a damper on demand for other nonessential purchases. If employees are struggling to afford to commute to work, then it might also increase company turnover.
Your business probably can’t do much about declining demand in the face of rising oil prices. However, you can at least try to taper turnover by assuring employees you will temporarily comp them for their commutes if oil prices are too high. This will make them feel less frustrated about having to pay for gas and less likely to look for work closer to home.
Corporate profits might not be as important to all businesses as some of the other indicators on this list. However, they are clearly going to be important for businesses that have a lot of large companies as customers. Rising corporate profits indicate an opportunity for expansion with that market segment. They are also a leading indicator that unemployment might drop, which can help them make staffing and purchasing decisions in the intermediate term (perhaps over the next 1 to 3 years).