The stock market's volatility this year has some small business owners deciding to run their businesses more cautiously.
Consumer spending and the economy are strong and many businesses report all is well. But some owners are worried because their customers are spending less.
Some owners are thinking of taking fewer risks. One concern is that the gyrations are a harbinger of recession; investors tend to buy and sell based on what they think the economy will do in six to nine months. And while the market has been right before — as in mid-2007, when it began falling half a year before the Great Recession began — it's not foolproof. Chester Spatt, a finance professor at Carnegie Mellon University's Tepper School of Business, notes that when the market crashed in October 1987, "that fall was not really associated with a material change in business."
Still, when there's volatility, "businesses may react, for example by reducing their orders in advance," Spatt says.
What some owners are doing:
— Cost-cutting is becoming a priority. In the home remodeling industry, contractors are using cheaper materials as customers lower their budgets on projects. The frugality extends to developers who build houses — they're making smaller investments in new properties, says Kathy Barnes, who helps manage projects in the St. Louis area.
— The Slumber Yard, which operates product review websites, will hire more slowly next year, co-owner Jeff Rizzo says. Owners have been conservative about hiring since the recession, and market volatility is likely to make some even more cautious. They're likely to deal with slower hiring in the same ways they've handled the lack of qualified candidates for their job openings: In a Bank of America survey released this month, owners said outsourcing work or taking on more tasks themselves were ways they've coped. They're also training current staffers to give them more skills.
— Prospecting for business, something many owners do continually, is becoming more important. Mark Ehrhardt, owner of Movers Not Shakers, a moving company in New York, is ready to start contacting mortgage brokers and building managers, who know of people selling their apartments and homes and moving. "You just have to be smarter and figure out where the activity is," he says.
— Entrepreneurs having a harder time getting investor money are putting Plan B together. When it looked like Steve and Bea Fisher wouldn't get investors for a hardware store in a rural part of Nevada, the couple looked at their savings and began inquiring about non-traditional lenders. But they found that lenders, even those catering to small businesses, offered only small amounts, sometimes $2,000 out of $10,000. "We thought we might be forced to dig a little bit deeper into our pockets," Steve Fisher says.
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