How small business can survive in today’s uncertain economic climate

At the close of Q1 last month, Deloitte projected a likely soft landing for the US economy, but only if several major issues are addressed promptly, including the loosening up of labor markets, the settling of interest rates and a decline in inflation.

“I do think we’re in an uncertain economy,” said Gregg Genovese, CPA, and practice leader of the outsource accounting and finance team at the Bonadio Group – an accounting firm whose corporate headquarters is in Pittsford. “There’s some hesitancy in the market, some larger companies are laying off, and there’s a feeling of not knowing if we’re in a recession or not.”

What steps can small businesses take to manage their finances and borrowing needs in this uncertain economic environment? We asked Genovese and two other professionals in Rochester’s financial management space for their suggestions.

For one, Genovese encourages his small-business clients to embrace technology when possible to help with labor shortages in their industry.

The National Federation of Independent Business’ January 2023 Jobs Report found that 91% of small-business owners who were hiring or trying to hire reported few or no qualified applicants.

“Technology is a huge way to bridge the gap in an uncertain labor environment,” he said. “If you can’t hire there are tons of technologies out there to help you work with the labor shortage.”

Genovese also says that in times like these it is more important than ever for small businesses to understand their numbers and the many state and federal regulations unique to their industries and businesses in general.

“Being a small-business owner in general is quite a bit harder than it was even five years ago,” Genovese said. “There are a lot more regulations out there.”

One conversation he has been having more frequently with his small business is that profit and cash flow are two different things.

Simply put, profit is the amount of money left over after all expenses have been paid, while cash flow is the net flow of cash into and out of a business. Both can be negative or positive.

When he explains the difference between profit and cash flow to business owners he often does so using visual aids so they can see the pieces of the puzzle and how both actions impact their business. This underscores another suggestion Genovese has for small businesses in an uncertain economy: outsource financials and accounting.

“If you don’t have that expertise, there are plenty of good advisors out there,” Genovese said. “Pick up the phone and do your research. Generally, there is no obligation to talk to advisors and to get a feel for their approach and the benefits they can offer you.”

Marcus Cortellini, CPA, is a partner with Insero & Co., a public accounting firm with locations in Rochester and Ithaca. He is also a board member of the Small Business Council of Rochester, an affiliate of the Greater Rochester Chamber of Commerce, which supports success in small business through programming, coaching, networking, and more.

When Cortellini graduated from St. John Fisher University in 2006 he wanted to work with small closely held businesses as a “trusted advisor,” something he has done at Insero & Co. his entire career and finds extremely “gratifying.”

He says that in today’s economic climate, it is more important than ever for small businesses to have a thorough understanding of their financials and knowledge of the strength of their balance sheet.

Some of the current challenges his clients are facing are labor shortages across industries, the need to raise prices to keep up with inflation, and hesitancies about spending on things like new equipment.

“The unknown of a potential recession has made my clients a little a little more unsure moving forward than they were previously,” Cortellini said. “They are a lot more conscious about taking on new debt.”

He encourages small businesses not collaborating with a trusted financial advisor to find one and for those who are collaborating to keep the relationship strong.

“Open lines of communication are very important so we can vet through different ideas,” Cortellini said. “I like to be in the know about problems so that I can be more proactive than reactive.”

Scott Lockwood, CPA, is a partner with MMB + CO, a public accounting firm headquartered in Rochester with offices in Elmira and Canandaigua.

He sees a mix of small businesses continuing to be successful in today’s uncertain economic environment, as well as others that are struggling.

The difference, he says, is often based on the industry; generally speaking, those focused on necessary goods and services are doing well and those focused on discretionary spending are slowing down.

Lockwood believes it is especially important for small-business owners to be aware of the macro issues happening in the economy. For example, Meta (the parent company of Facebook) laying off 4,000 employees earlier this month and the trickle-down effect layoffs in the tech sector could have.

“During times of economic uncertainty being a little more conservative is prudent,” said Lockwood, offering additional tips. “Look at your discretionary spending and if there’s purchasing that can be held off, you may want to wait.”

He also recommends small businesses evaluate their current banking and credit relationships and agreements to make sure they are competitive with the market today and to stay in contact with trusted financial advisors.

Lockwood also notes the importance of taking care of your employees during times of economic uncertainty and making room for new ones that could potentially be the “unicorns” you have been searching for.

“As the economy slows and more layoffs happen there are going to be some really good people available through no fault of their own,” Lockwood said.

Caurie Putnam is a Rochester-area freelance writer.