When times are good, businesses can become shortsighted. They may overspend or not look aggressively for cost savings. But it’s during healthier times, experts say, that businesses can best prepare for leaner times.
“Every business should prepare for a downturn,” said Alice Bredin, president of a content marketing and small-business research firm in Massachusetts. “Nobody knows the timing of course, but to believe that we’re going to be in a perpetual boom is naive.”
During an economic boom, businesses often don’t tend to their companies the way they should and can overlook inefficiencies that could hurt them during leaner times, she said.
Bredin Inc., which tracks small-business optimism, found it’s been dipping: 54 percent of firms said in January they expect to see growth over the next year, compared with 67 percent in the summer of 2017.
In addition, online reviews site Yelp's index, the Yelp Economic Average, which tracks business health (openings and closings of firms on its platform) and consumer interest (in reviews, check-ins etc.) to help businesses plan ahead, slipped in the second half of 2018. The YEA was 100.7 in the third quarter, 98.5 in the fourth — the largest decline, Yelp says, since 2016's fourth quarter.
The YEA monitors 30 core business sectors, including professional services and retail. Slumps in the core sectors may be early signs of an economic downturn, according to Yelp, but it isn’t forecasting now whether the YEA will be better or worse in the current quarter than it was in the 2018 fourth quarter, said Carl Bialik, Yelp data science editor. Yelp's next index is due after March 31.
The purpose of the YEA, Bialik said, is to help businesses understand what the economic conditions are “so that they can make the best possible decisions with their resources that are often limited.”
That doesn’t mean Long Island businesses have to institute a spending freeze per se.
John A. Rizzo, chief economist of the Long Island Association, says the Yelp Economic Average can be a useful indicator of business and consumer activity but doesn't necessarily predict a recession for the local economy in 2019. He believes there’s little to suggest that at this point: "I think talking about a recession in absence of convincing evidence of a recession is counterproductive. It can be a self-fulfilling prophecy. ... It's probably not helpful to panic.”
He noted that in 2018's final period the business community was unsettled over tariff and trade friction and uncertainty about the Federal Reserve's stance on further raising interest rates. Both issues have since eased, he said, and he expects business sentiment to improve in this quarter.
Still, it's always good to be forward-looking and cautious.
Rob Basso, CEO of Associated Human Capital Management in Plainview, said he hasn’t seen signs of a slowdown yet, but he’s always trying to make sure he’s prepared in case there’s a downturn.
This includes having access to capital with both an available line of credit and cash reserve. He also believes in diversifying his offerings so he has multiple revenue streams.
So for example, in addition to offering human resources and payroll services, he spun off an insurance agency a few years back and in the next month is rolling out a service to offer firms New York State-compliant sexual harassment training.
You need to “keep your finger on the pulse of where the market’s going,” says Bredin, noting it’s also wise to tighten up billing and collections as a best practice.
Not to be too depressing, but …
While there’s no crystal ball to predict when a downturn may occur, 42 percent of U.S. economists surveyed by the National Association of Business Economics think a recession will happen in 2020.