According to NerdWallet’s Small-Business Opportunity Index data, the economic climate for starting a small business has changed significantly over the past year. Some small-business experts advise entrepreneurs to be prepared for a rough start or to even put off their business plans.
The NerdWallet Small-Business Opportunity Index examines six types economic data to assess the feasibility and common obstacles associated with starting a small business. These include average rates for short-term loans for business purposes, difficulty finding qualified employees, SBA loan approvals for persons of color, women veterans, rural businesses, office rent costs, and regulatory concerns for small businesses.
The NerdWallet Small-Business Opportunity Index is down from 100 in September 2021, to 78.1 in September 2022. This indicates a weakening business environment.
Index down Due to labor issues and interest rates
The index’s underlying data shows that the percentage of SBA 7 (a) loan approvals to veterans, people of color, and women has increased since September 2021. Data from the National Federation of Independent Business also shows a decrease in relative concern by small-business owners regarding government regulation.
However, other data from Colliers International Group, the National Federation of Independent Business and the Federal Reserve Bank of New York highlight higher rates , more difficult finding qualified employees and upticks rent costs, all of which have pushed down the index over the past 12 months.
People who are considering starting small businesses can find it difficult, according to Rob Cordasco, a Savannah-based certified public accountant who specializes on entrepreneurs. He says, “Setting up one is easy.” “Surviving? Different story .”
Experts Say: Aspiring Entrepreneurs Should Do 5 Things Different Now
According to three small-business professionals, starting a business today will be very different from six months ago or one year ago due to an increasingly hostile economic environment. Entrepreneurs who wish to launch a business now should take a different approach than the typical startup rules.
1. Take inventory more strategically
Small businesses need to be more careful about when they purchase inventory. Prices may rise in the future, but they might be higher than today. Desha Elliott, Accion Opportunity Fund’s business advisor, asks, “If you buy it now, how much do you save when inflation hits?”
It is important to do more than just the standard supply chain planning when you start a business. Buy inventory that is currently available. Try to find three to four vendors that have the product you need. This will maximize your access. Julie Brander, certified business mentor and SCORE Alabama district director, said that you should focus on purchasing inventory that is currently available.
2. Prepare for different situations by having more cash in your pocket.
Brander states, “Absolutely keep a reserve.” She notes that the standard advice to have cash reserves of at least one to three months is to keep it at three to six months.
You should also consider how you will handle disappointed sales and a recession. Elliott says, “What’s the best procedure you have in place to help you when your customer flow slows and you need cash flow?” Elliott says, “Are there any costs you could restructure?” … Before any situation occurs .”
3. Invest in workplace culture sooner
Elliott says that tight labor markets may mean that new entrepreneurs will need to spend more effort and time creating a work environment for their employees in the beginning stages of building their business. You want to keep your employees committed and engaged during times of shortages. So, what can you do to foster a company culture and show appreciation?” she asks.
4. You might consider pumping the brakes …
Cordasco advises that most people who are considering starting a business should wait for conditions to improve before they do so. Cordasco suggests that you might not be too eager to jump in, but instead try to ease yourself into the process. “I wouldn’t be too optimistic .”
He suggests that entrepreneurs who are able to get started right away may need to be more cautious to avoid certain things going wrong. For example, it used to be about having enough money to acquire labor and supplies. But now, he states, “Those things can be really difficult to find, regardless of how much you have span>
5. Or not
For some, the sidelines could be the best place to start a business. Brander believes that for some, it could be a great time to start a company. “Look around to see what is needed in your community. She notes that business is the solution to people’s problems.
Elliott says that even though times can be volatile and interest rates and expenses are high, regular entrepreneurs still have plenty of options to start businesses. She notes that entrepreneurs who have laid solid foundations early may be more likely to succeed in the future. “Entrepreneurship span is a marathon, not a sprint span
METHODOLOGY
NerdWallet’s Small-Business Opportunity Index includes elements from the National Federation of Independent Business’s Small Business Economic Trends Data, Colliers U.S. Office Market Outlook and ADP’s Small Business Quarterly research Insights. It also incorporates elements of ADP’s Small Business Quarterly Insights and ADP’s Small Business Quarterly Reports.