Tucsonans were grateful to put 2010 behind them and look ahead with renewed hope. The prior year was full of foreclosures, vacancies, financial struggles, rising unemployment, and a rising cost of living. Small businesses were significantly impacted. Many with negative cash flow shuttered their doors. It seems the real estate industry suffered most in the local economy; but, truly, the impact of the customers’ empty pockets rippled out to nearly every industry.
It is heartbreaking to see any business close. There are many reasons a business fails even in good economic times, but inadequate capital and the failure to evolve with the changing times are paramount. Many businesses operate with blinders on - unwilling or unable to read the warning signs to change or perish.
An example of this is the “mom and pop” gas station. When Texaco withdrew from the Arizona market, many unbranded gas stations and convenience stores became available for new proprietors. The emergence of big box stations into the local area was the first sign of change. Then came the entrance of the newest chain of “superstations”. Both these new competitors enjoy strong purchasing power and offer discounted prices that the local stations can’t compete against. Where do you buy your gas? Most likely, it’s where it is cheapest.
So what is a business owner to do to help prevent a similar situation? Begin by conserving working capital. “Cash is king” and is achieved by paying down debt in good times to reserve for the hard times. Review your business plan often and reevaluate whether it is adequate for the current economic times and your particular situation. If your business does not operate by a business plan, develop one. Do your own research and know your market environment. Look for changes in technology, the economy, and the competition. Be prepared to take action and adapt to the current market climate.
A successful business must have sharp foresight into the marketplace and the resources to sustain itself in hard times. Working capital may be available through equity investors or lenders who look for a conservative financial track record and a well thought-out business plan.
Ms. Nowak is a senior vice president and commercial loan officer at Commerce Bank of Arizona, an Arizona based community bank specializing in serving small to mid-size businesses in Arizona. She can be reached at email@example.com or by phone at 520-321-0398