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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | OCTOBER 19, 2000 MANAGEMENT It's Gut-Check Time The stumbling stock market and possible downturn ahead are forcing small businesses to take hard looks at their budgets
His clients, the smaller machine shops that feed parts to larger companies, such as avionics manufacturer Rockwell International and engine maker Briggs & Stratton, are waiting for orders. So are construction companies, where jobs dropped off as interest rates rose this year. "Our orders dried up. There's no question that people are more jittery than they used to be," says Deabler, who's keeping a close eye on the woozy stock market and its southward trend. GETTING WORRIED. His fellow small-business owners report that business isn't bad, but it is slowing -- and revenues are flat. They're not laying off, but they're not hiring, and they're not working anyone overtime. "People are looking at the markets and starting to get worried," says Chris Wysocki, president of Small Business Survival Committee in Washington, D.C., a lobbying group with 60,000 members. "It's gut-check time." The sliding stock market has forced small businesses, most of which operate on thin profit margins, to take a look at their forecasts and their budgets, to see if they're still in line with revenues. Many are adding to cash reserves to help weather the slowdown they see ahead. "People have woken up to the fact that this economy can tumble," Wysocki says. "A stumbling stock market focuses your vision on your own operating expenses." At many companies, less money is coming in the door. Only 3% of small businesses reported higher sales in the third quarter, says Bill Dunkelberg, chief economist for the National Federation of Independent Business. He sees evidence of reduced inventories and cutbacks in capital spending, the lowest in four years, at small companies. "The pattern of capital-spending plans looks suspiciously similar to that encountered prior to the past two recessions," he says. PREPARE NOW. Although Dunkelberg expects sales to weaken further in the fourth quarter, he thinks many businesses are in good shape to weather a downturn. Borrowing, he points out, is at record low levels among the federation's members, thanks to the money they made during the record economic expansion. In his business, Deabler is dealing with the uncertain outlook by cutting costs with such moves as finding cheaper insurance carriers. Preparing ahead of time for trouble is a good move, says Gene Fairbrother, chief consultant to the National Association for the Self Employed. "Hopefully, the sky will not fall," he says, "but if it does, then it's too late to act." Small businesses, historically, have been slow to react to economic downturns, he says. "They may see their retirement statements coming in and not liking the devaluation in their portfolio, but they don't realize what that might mean for their business." He advises clients to go through some "what-if" scenarios: If cash flow is slow, look for fat that can be cut, and do some forecasting about where the business will be in the next year. Sounds tough, but it has to be easier than forecasting where the stock market will be.  By Theresa Forsman in New York  | | |
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