Escalating oil prices and their impact at the gas pumps have a significant impact on the economy and hit small businesses particularly hard. The price of gas, which has risen sharply following unrest in Tunisia, Egypt, and Libya, among other places, affects shipping orders, business flights, and every day travel expenses. Smaller companies, which frequently have a razor thin margin for error, find it especially challenging to prosper within a new cost structure.
Startups face a different problem; they need to prove a path of profitability to secure funding. The rising cost of gasoline has a ripple effect; it impacts costs, sales and profits – three things financial institutions will examine before lending money to would-be entrepreneurs. Naturally, anyone going into the trucking business or another industry involving transportation is likely finding it harder than they ever imagined securing capital.
The most disappointing thing about the developments in the Arab world is that they occurred just when we began to see positive signs of economic recovery. Rising fuel prices toss cold water on the momentum. It’s not just the fact that it costs more to ship things. Higher prices for gasoline mean consumers will have less disposable income to spend. This hurts small businesses such as restaurants, coffee shops, and purveyors of retail goods. Service providers, such as nail salons, landscapers, and bed-and-breakfasts, see their revenues drop off when customers are strapped for cash. The loss of cash flow and the challenges in getting customers back in the spending mindset can be daunting for small business owners. A major reason for the 2008 Main Street recession was oil prices touching $150 which led to overall slowdown in the economy. The worry is that if oil prices keep rising, the fragile recovery can be damaged.
What is also alarming to small companies is the possibility that their regular customers may try shopping for goods at large discount stores that can charge lower prices. The loss of consumer confidence – and the resulting reluctance to spend while gas prices soar – hurts everyone. Since small businesses account for up to 70 percent of the new jobs in the economy, high fuel costs can be devastating.
What can small business owners do to improve their financial situation as a result of steadily rising fuel prices? My advice is to utilize technology when possible:
- Schedule video conferences or conference calls instead of flying to meet with clients, if possible.
- Examine options such as Skype if you are in the import/export business or have a lot of international vendors and clients.
- Ask customers if they would prefer electronic invoicing and payment methods. This will cut down on printing and mailing charges. If corporate giants like American Express can do it, so can the little guys.
- Don’t print documents if it’s not necessary; store them electronically. This will save costs, as well as help the environment by reducing the amount of paper we use.
- Allow employees to work from home (if appropriate for the job function).
- Use websites such as Biz2Credit to secure funding. Why go through the hassle of visiting banks and applying for loans with institutions whose lending criteria you do not match? It’s easier to do such things online.
Leveraging technology doesn’t mean you cannot also “go old school” to save on costs. Walk, bike ride, or take mass transit to your place of employment. Encourage employees to do so, as well.
Don’t be surprised if your customers tell you they appreciate your bootstrapping mentality – particularly if they have had to tighten their own belts.
A frequently quoted expert on small business lending and recently named the Top Entrepreneur of 2011 by Crain’s New York Business, Rohit Arora is CEO of Biz2Credit, which connects small business owners with 300 lenders, credit rating agencies and service providers. Since 2007, Biz2Credit has secured $400 million in funding for small businesses in New York and across the U.S. via its safe, efficient online platform.