A small business is usually started when one sees a need or product that they can build or fulfill. Many great ideas result in a person wanting to create or fulfill a need. An entrepreneurial spirit is required for this is to take place. One must be willing to take rick, work long hard hours and sacrifice much to accomplish such a venture. A small-scale business is an independently owned and operated company meaning it has no parent company or affiliations with another organization. They are a for profit business that has a small workforce with typically less than five hundred employees.
Most often small businesses are started with the owner’s or partners’ own money. This is due in large part to the requirements placed on small business loans. Financial institutions are not usually as willing to take such a risk. One of the most significant impacts that a global economic meltdown has on a small scale business is the decrease in demand. The term demand refers to the customer’s need or want for a product or service. As the economy takes a downturn, people begin to get more conscious of the purchases that they are making.
One of the first expenses to get cut are those that are deemed unnecessary which happen to most often be provided by small-scale businesses. As the demand for their products decreases, small-scale businesses are forced to make tough decisions. To counteract the lost in profit, the company can either decide to raise prices, lower prices, or the dreadful choice of laying off employees. Raising prices allows the business the opportunity to gain back some of their profit because they will have to sell less to make the same amount of money as before. However, this runs the risk of making the product even less desirable to the consumer if the markup in price is too high.
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Lowering the price of products can make the product more desirable to the customer, but the business must then sell more product to be able to keep the same profit before the global economic meltdown which is unlikely. In the worst cases, a small-scale business will have to decide to lay off employees as a means to save money. Laying off employees often leads to bigger problems in a small-scale business. Office morale decreases as employees begin to fear for their jobs. The people who have the opportunity to continue working for the business are then forced to worked even harder for the same amount of pay or sometimes even less if wage cuts are made. The employees often have to work overtime to make up for the decrease in the number of employees. Furthermore, companies tend to revoke benefits for employees as a means to cut costs.
This could include reducing insurance coverage, reducing contributions to 401K’s, and not providing paid time off. As a result of downsizing the business, it becomes difficult to produce the same quality of products as before and is harder to accomplish tasks that were deemed easy. This often leads to people taking shortcuts when it comes to making their product. These shortcuts can include using an inferior material, lowering the quality of craftmanship to decrease the time spent making the product, and old broken down equipment. A negative effect of taking such shortcuts is the decrease of product quality which can make the item even less desirable to the customer if it is noticeable.
Another affect that global economic downturn has on small-scale businesses is the increase in the price of supply. Supply refers to the product or resource that is provided by one company that is then sold to another at a given price. Businesses that provide supply to another will often increase the price of supply in an economic meltdown. This is an attempt to remain profitable, but negatively impacts the business that is buying from it. The increase in the price of supply makes it harder for the company buying it to maintain their profits. This can be detrimental to a small-scale business. For a small-scale business that provides services to their customers, such as construction companies, an economic meltdown can lead to customers not paying. After performing and completing a service, the company expects to get paid for their time and effort.
However, if a customer cannot or does not pay because of the effects that the deficient economy has had on them, it leaves the company in an unfortunate situation. If customers do not pay, the business is then unable to pay for their own expenses. These include paying their own bills, paying their suppliers and their employees. Furthermore, small businesses will have problems when applying for loans due to the state of the economy. Before the downturn of the economy, small businesses already have a hard time with getting a loan from banks because they often lack the financial stability that banks look for when deciding whether or not a company will receive a loan. In most cases, a small business is started using money that the owners have out of pocket in an effort to get the business off the ground and running.
This usually leads to debt which makes it even harder to be approved for a loan. However, as the state of the economy is in ruins, banks are more reluctant than ever to approve a small business for a loan. Being denied a loan can lead a company to failure and go out of business. A small business needs to be innovative in order to produce more with less. New ideas feed innovation which can often lead to the lower cost of producing a product or service. The lower cost to produce a good or service makes the small business more profitable.
When profitability is slowed or halted due to the poor state of the economy, an entire department may need to be eliminated thus causing many of the feelings or distress mentioned previously. The department dedicated to creating new ideas and products is usually the first to be laid off because businesses can barely sustain the products they already have. Therefore, they cannot afford to begin the trial and error process that comes with new products. So, a company would be more likely to keep the employees that know how to produce the current products than the employees that are there to come up with new ones.
In conclusion, when the economy of a country or countries experience a sudden downturn brought on by a financial crisis, people tend to get very concerned about the financial health of their businesses, jobs, and families. A global financial crisis is a difficult business environment to succeed in since potential consumers tend to reduce their purchases of goods and services until the economic situation improves. This causes businesses to lose capital since spending is typically reduced on all levels. Businesses and individuals alike tend to keep their money closer to their vest when they are unsure of the future. This causes a trickle-down effect on every level of society and contributes to the turbulent economy.
