2012 is Looking Like An Excellent Time to Invest in Small Businesses – Why There are A Lot of Credit Worthy Small Businesses

By |2012-03-13T22:50:16-07:00March 13th, 2012|

For the last few years, small businesses struggled to survive tough economic conditions. The financial crisis, deep recession, global uncertainty, and reduced consumer spending have all pummeled the small business community. Making matters worse, banks and lenders have tightened their lending standards making access to capital more difficult at a time when companies need it the most. As a result, many small businesses have faltered. But some have not only survived, they have thrived and prospered. Successful companies that have lean operations, effective business models, and forward thinking management are poised for a stronger future and could help make 2012 an excellent time to invest in small businesses.

The survivors and thrivers of the recession are operating with greater efficiency and with stronger balance sheets. During the recession, low sales due to cautious consumer spending forced small businesses to cut costs and learn how to operate under leaner conditions. The successful small businesses used innovative cost cutting strategies that not only reduced their expenses but also provided more creative ways to acquire resources. For instance, bartering for goods and services, leasing equipment instead of buying and renegotiating vender agreements are a few strategies successful small businesses used as a means to cut costs and improve cash flow. In addition to cost cutting, small companies engaged in deleveraging and better management of their working capital in order to produce more favorable balance sheets.

Besides slicing budgets and getting better control of their expenses and finances, credit worthy small business have retooled their business models and strategies to respond to shaky markets and position themselves for future growth. These businesses sought to understand their marketplace, the shifts in consumer demand, their competitive landscape, and how their products and services best serve their customers.

Having a good business model and the flexibility to tweak business and marketing strategies to take advantage of new opportunities, helped small businesses remain competitive even in the most dismal economic periods. For example, Innovative Office Solutions, a 10 year dealer of office products and supplies, has seen 102% sales growth in the last 3 years. They attribute their success to not only starting their company ultra-lean but also becoming highly strategic during the recession. During the economic downturn, their customers were spending less money on their office product purchases. To offset this decline, the company began to offer add-ons that complimented customer purchases resulting in an immediate increase in sales. Additionally, while their competitors cut staff to lower their expenses during the recession, Innovative Office Solutions did the opposite and increased their staff by 30% to shore-up their customer service staff and training, one of their core strengths.

For some small businesses, consolidation and the formation of strategic alliances are tactics they have adopted to survive market upheavals and move forward. Merging with other companies or forming strategic alliances have enabled small businesses to become more cost efficient, gain better positioning, access new distribution channels and achieve product and service diversity. This is readily seen within the medical industry. Private practice doctors have found it increasingly difficult to sustain their own small businesses due to escalating insurance costs, reduced Medicaid reimbursements, and a slew of new regulations. Private practices are merging or they are joining larger medical groups that can provide them with an expanded customer base and shared overhead costs. Other companies formed strategic partnerships to obtain new distribution channels. For example, Footzyrolls, a foldable footwear company, had formed an alliance with international distributors to infiltrate the international market. They also partnered with other companies so that their products could be bundled with their complementary products.

For the last few years, bad news has been the “soup du jour” for the small business community. But there is a silver lining to the doom and gloom. The good news is that some small business have not only survived the economic downturn but also prospered. These small businesses have proven their mettle, have displayed forward thinking leadership, and have strengthen their credibility. Now they are ready for growth.