Can Greece impact small businesses?
For months, and actually years we have heard about the tough economic environment at Greece and its impact to the world’s economy. It sounds like a distant country, and not very large in proportion to the world’s economy, even to the European economy so its natural to wonder, why so much attention, and why should we worry about it? Can Greece impact small businesses?
Part of the answer is in the hyper-connected nature of the world’s economies and financial markets. In Greece situation, we are contemplating the potential default of €1.5 billion to the International Monetary Fund1, which are due today June 30th. An additional €25 billion to multiple creditors are due in the balance of 2015, mainly treasury bill holders, the European Central Bank, and the IMF. A potential default by Greece would touch far more than just their economy.
Another element of the answer is described by the potential chain of events that would follow a default, which could include separation of Greece from the Eurozone, re-adoption and subsequent devaluation of the Drachma, inflation, and general unrest in the country. Commerce with other nations would be affected, even tourism. As these events unfold the investor confidence would significantly drop, not only in Greece’s financial market, but also in the European market and its ability to maintain an economically stable, integrated Union.
Yesterday’s market reaction was just an anticipation of the above. The Dow Jones lost 348 points, S&P 500 lost 40. The investor confidence is impacted, risks increase and automatically adjust the value of financial instruments, including bonds, stocks, currency, even commodities. The big question is, if Greece does indeed default, how would it affect your business?
Global corporations have, and are affected by international sales. When foreign markets are affected US based corporations see this impact in their bottom line. In meeting financial goals corporations will take measures to compensate for any negative impact, including cost reduction and discretionary spending rationalization.
If your business sells to global corporations it is possible that any cost reduction initiative may affect you directly, either through reduction or elimination of business, or just by generating pricing pressure. If your business does not sell to corporations but to medium-size businesses you could still see an impact if your customers’ customers are large corporations. Even if your business sells only to consumers a drop in our financial markets would affect you indirectly; your average consumer might reduce their spending and with that reduce your sales.
What to do next? anticipate! In the same fashion as the investor community is anticipating the consequences of a Greece default you can anticipate the need for cost curtailment. A few ideas include:
1. Evaluate your cost structure, assess where can costs be rationalized, what is optional, and what is critical for your business operations. Examine with detail your discretionary expenses.
2. Be ready to contact your key suppliers and request price concessions. Describe the situation and seek support.
3. Explore alternative sources for your raw materials, goods, and services. This may be a good opportunity to test the market for new suppliers.
4. Challenge your team to reduce operating costs. If you have manufacturing operations explore more efficient production methods. If you deliver services, challenge the team to deliver more efficiently to your customers.
5. Diversify your customer base. This may be a long-term project, but it is always a good business practice to have balanced sources of revenue.
6. Refresh your “What if” plan2.
In conclusion, could Greece affect your small business or start-up? the answer in many cases might be yes. Can you prevent it? probably not, but you certainly can anticipate and proactively prepare for tough times. Start today, develop a plan, and prioritize the actions that will best support the needs of your customers.
1 WSJ.com
2 “What if” plan is a set of scenarios describing risks, impact, mitigating actions, and contingencies.
