When you are running a business, you have a lot of hard decisions to make.
Should you hire more people or keep running on a skeleton crew? Should you expand to that new location or keep your business small? Can you afford to sink your cash into merchandise or should you hold on to it a while longer?
No one has a crystal ball, so making business decisions can be a very stressful thing to do. One thing that can help is paying attention to what is happening within the economy, both locally and nationally.
Local Economy Matters
If you live in an area where there is a general push to support small businesses, that can definitely help your small business to do well. Doing business in a place where the cost of living is low can also help you to keep your business expenses low. You won’t need to pay someone $100,000 a year for working at a drive thru when the cost of living is low.
Living wages are, by definition, lower when the cost of living is low. In essence, this means that the cost of doing business can be kept lower in these areas as well.
It’s also important to pay attention to things like foreclosures and bankruptcies in your local area. Some areas have a greater concentration of economic issues or have those issues earlier than the rest of the country.
See Also: How to Ensure Growth in Small Business
National Economy Matters, Too
Do you know what the DOW closed at yesterday?
Well, I don’t.
It’s not every person’s responsibility to keep track of every single thing that happens in business. However, as someone who is aspiring to be successful, you need to be observant of the situation, especially if you are making business decisions.
Looking at economic trends can give you an indication of which way the overall economy is headed. Maybe things are still going great in your small town but foreclosures are up across the nation. There’s a good chance it’ll affect your town, too.
There are many different economic indicators you can look at to determine how the economy is doing. There’s even a lipstick indicator. When lipstick sales go up, it generally means the economy is in a downturn and people are still treating themselves in smaller ways.
Some of the most common economic indicators in the United States economy are:
Consumer Financial Stress- When spending goes down and debt loads go up, that’s a good indicator that the economy is heading for a downturn.
Housing Starts- When people build more new homes, the economy may be on an upswing.
Bankruptcy- More bankruptcies can mean that people are ready to put their debt behind them and move forward.
Foreclosures- As with bankruptcies, foreclosures can indicate that people are ready to move forward and get on the right track. High foreclosure rates and high numbers of foreclosures at a specific area can also indicate that there is stress in the banking system, as we saw in the foreclosure crisis of 2008.
Knowing Where The Economy Is Headed Helps You Make Better Business Decisions
Imagine you are in the restaurant business. You want to open a fancy French restaurant in the hottest part of town. Rent will be high. Overhead will be high. Meals will be pricey.
If the economy is headed upward, you have a better shot of making it work. However, if everyone around you is having their houses foreclosed and filing for bankruptcy, it’s obvious that they wouldn’t have extra cash to spend on an expensive meal.
Legal Intakes Can Clear Up Confusion
When you have two or more economic indices that seem to be contradicting each other, you may need a little more information to make sense of it all. Legal indices track legal intakes across the country and can help clear up any confusion about two indices that seem to be at odds with each other.
If foreclosures are up but legal indices show they are old foreclosures moving out at the same time housing starts are up, that’s a pretty good indicator that the economy is on an upswing after all.
Your Business Depends On Sharp Decision Making
Making the best possible decisions for your business means you need to be well informed. Learn more about economic indices from this infographic.
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Author: Brian Wallace
Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency based in Louisville, KY and Cincinnati, OH which works with companies that range from startups to Fortune 500s. Brian also runs #LinkedInLocal events nationwide, and hosts the Next Action Podcast. Brian has been named a Google Small Business Advisor for 2016-present and joined the SXSW Advisory Board in 2019.