AN EMPIRICAL EXAMINATION OF RESPONSES OF SMALL BUSINESSES TO CHANGING ECONOMIC CONDITIONS: THE IMPACT ON PROFITS AND SALES
Sherman A. Timmins, The University of Toledo ABSTRACT As smaller firms are increasingly confronted by changing economic conditions, their reactions may be best to be focused on costs, prices, wages, productivity, and employment and inventory levels. Decisions about these elements are greatly enhanced for those firms which use cash plans and which supplement those plans with information gotten from consultants and trade sources. INTRODUCTION Over the past few years, a number of economic and government forces are being felt in the competitive environment facing the Nation's small businessman. These forces include such things as high inflation rates, high interest rates, recession and depressed markets, uncertainty of raw materials, and Government regulations and taxes. The combination of these factors can be argued to be limiting the growth of and threatening the survival of small business. As a result, many small business owners/ operators frequently blame the U.S. economy for many of their problems. The purpose of this paper is to review the results of our study examining the relationship of the economy on small businesses and, in turn, the responses made by small firms to changes in the economy. Specifically, we examined the efforts and decisions made by smaller firms in response to "tight economic times" and the firms' efforts to control relevant variables. We also examined the reported use of cash plans and cash planning and the effect on profits and sales. RELATED LITERATURE REVIEW Economic Impact on Small Business Current economic forces have a continuing impact on smaller firms of all natures, but the impact is diverse and not felt equally across types of firms. Many of these economic forces have been reported in the literature, and this information is rich in value for better understanding the impact on firms. Authors have examined...