What's In Store for Small Business in 2010?
By CAROL LOPUCKI
Director, MI-SBTDC
SPECIAL TO MIBIZ CRYSTAL BALL 2010
The one-year anniversary of the financial crisis of 2008 has come and gone and although the economy of Michigan is recovering slowly, the future outlook is both challenging and optimistic for small business in 2010. Despite sluggish consumer demand, the Michigan Celebrates Small Business, the state's premier awards program for small businesses, had a record year for 2010 nominations, demonstrating that the importance of small business remains in the minds of people across our state. Many experts communicate to our organization that entrepreneurs and small businesses will be an essential part of the Michigan recovery in 2010. We expect that several trends will appear in the coming year and that small businesses will need to adapt accordingly.
The demand for products and services is going to continue to lag in the early part of 2010 as the unemployment rate continues to remain high. Low consumer confidence and lack of spending will continue to stifle company sales and increase the need to keep costs low. Larger businesses will remain cautious about their investments and are likely to decline any products or services which they deem "unessential" to their core business. Subsequently, small businesses will have to carefully analyze the viability of their new product launches during the year. Although the economy may see a surplus in 2010 if the unemployment rate remains high, the economic recovery is likely to procrastinate. Some economists, however, are predicting the unemployment rate to stay stable throughout the year and decline during late 2010.
The start-up rate for small businesses will continue to grow, as highly-skilled workers who were dislocated from larger entities continue to pursue their own new ventures. Financing their business through internal capital ("bootstrapping") will be a key success factor for these businesses as the financial markets continue to be locked up. Innovation from these new ventures and technology companies is going to continue to drive the Michigan recovery as it did after the recession of 2002-03. Indicators from Asia and Europe are that the international market is well on its way to recovery. The U.S. continues to linger behind, but Michigan small businesses with more international customer bases will emerge stronger and faster.
Keeping worker morale up next year will continue to be crucial for success. Proactive leadership will alleviate some of the distress of downsizing. Identifying strengths and empowering talent will be a good method for boosting morale. For many small business owners, there will be excellent opportunities to take advantage of Michigan's large unemployed labor force. Many highly-educated and trained workers from large corporations, who could help small businesses reach the next level, will now be looking to join the growing number of new business ventures in the next year.
Financing for small businesses will continue to be a struggle in 2010. While efforts are being made by recent changes in legislation to alleviate frozen credit pipelines and free-up much-needed capital for small businesses through the America's Recovery and Reinvestment Act (ARRA), lending institutions are likely to continue to be risk averse with new loans. Since April of 2009, the SBA's 7a and 504 Guaranteed Loan Approval programs have demonstrated results in encouraging lending to small businesses and will likely continue into next year. The effect will be more availability in long-term funding for small businesses. Equity financing will become more available in 2010 as venture capitalists and angel investors look to benefit from small, innovative companies that will lead the recovery.
Small businesses will need to invest in themselves. Knowing the ins and outs of their financial statements will be essential in keeping costs low and making sure records are up to date will help small businesses who will be seeking financing. Keeping overhead costs down will help small businesses control their finances if the volatility in the markets continues. Businesses should attend trade shows and speak with experts within the industry to identify opportunities for growth and new market penetrations. Educating employees on new techniques and programs will be an easy way to improve on a small business' most important asset.
Government regulation will also have a large impact in the success of small businesses in 2010. The healthcare reform bill is likely to affect hiring decisions for many small businesses. The cost implications associated with new healthcare reform will have to be considered carefully by business owners looking to hire new talent in 2010. In addition, alternative and renewable energy development continues to be a priority for the U.S. government. Federal tax credits for alternative energy will allow small businesses that specialize in the development of these technologies to expand their growth. With the availability of these incentives, small businesses will look to enter the market and drive down costs through competition.
We feel that the worst is behind us and that it will be the determination and innovation of small businesses across the state which will drive the Michigan economy through the recovery. While we estimate that the recovery may take as long as five years, we predict that the state will see growth in 2010. Many investors will be looking to take advantage of these growth opportunities, and therefore, small businesses will need to continue to innovate and pioneer new products and services to attract outside capital. While Michigan has been at the heart of the recession, it will be small businesses which will lead it to the forefront of the recovery.
