The Economy and Your Business

Over the last 18 months, the economy rocked businesses, both big and small. After taking so many hits where it hurts—the bottom line—many business owners are wincing at the thought of trying to get a sense of how global economic conditions will affect them in 2010. Like a proverbial Band-Aid, it may be best to just get it over with, and quickly. Recently, executive editor Daria Meoli interviewed Alan Beaulieu of The Institute for Trend Research to find out how economic trends will affect small businesses in 2010.

Daria Meoli: In general, what will the recovery look like for small businesses in 2010?

Alan Beaulieu: If you want one term for it, it would be “mild.” It’s uneven, because not all parts of the economy move in the same direction at the same time. Most small businesses are going to notice stability in the first half of the year, and some improvement in the second half, overall. But the second half of the year is definitely going to be stronger than the first half.

DM: What opportunities should business owners be aware of?

AB: Opportunities will vary; they should look for ways to protect themselves from the inflation that will be coming later. So, they should take advantage of what are likely to be the lowest interest rates we’re going to see for a very long time, and buy some inflation-adjusted assets. Spend some money, and buy commercial real estate in 2010. Buying things like that will give you a positive cash flow and increase your value. Create some wealth. This is a great time to do that.

DM: Does that advice hold true for acquiring companies, as well?

AB: Yes; look for companies that are tired. Look for companies that are running out of cash, and are willing to sell. In order to get ready for the upturn in 2011, you should invest in your own business, too. As we head into this time period where the economy is kind of languishing along the bottom and nobody’s excited, it’s a time for you to ask yourself, “If I’m 15% busier next year, do I have any bottlenecks? Am I going to be slow in deliveries? Do I have the right production people? Do I have the right salespeople?” Figure out where you are weak and use this time to strengthen the team through training and hiring. Don’t wait until the market is back up, because you’ll lose market share while you’re diddling around.

DM: You mentioned inflation. What kind of inflation can we expect next year?

AB: Over the next year, virtually nothing will change on the consumer price index, and that is where most people look to find inflation. But underneath that, we’re going to see inflation beginning to perk up next year for the producer price index, which includes construction materials and energy costs. Inflation in the producer price index will start to show up in the consumer price index in late 2010, but in the meantime, you’re going to have people saying there’s no inflation. There will even be people saying that deflation is a greater issue, but those people are wrong.

DM: If the consumer price index won’t change until later in the year, how will that affect wages?

AB: With unemployment over 10% as we end 2009, and staying above 10% into 2010, there’ll be no wage inflation. And, without any wage inflation and without people getting paid more, when inflation does begin to show up in the consumer price index, it will hurt. If prices go up 3%, but people haven’t gotten a raise, they will fall behind in their standard of living. Where there’s high unemployment and nascent inflationary pressures, it’s uncomfortable for people. That will shift in 2011.