Looking Ahead with Data:
How Industry Insights Can Guide Small Businesses in Unprecedented Times
By Robert Dunn and Heather Robinette
Dependable market intelligence has always been essential to the success of any business, and that’s never been truer than in today’s unprecedented economic environment.
Small business borrowers need to have realistic financial projections on which lending decisions can be made and a solid business plan that’s in tune with the market. As their banker, you want to know that your customers are prepared to not only face the challenges that lie ahead but also to take advantage of growth opportunities that present themselves.
Yet many business owners “go with their gut” when it comes to projections and guess who their target customers will be. Often, they don’t have a clearly defined value proposition or a realistic view of what to expect, leading to inflated projections.
Business owners who use market research to learn about trends and forecasts for their industry are able to develop more reliable financial projections and refine their product/service offerings to better meet customer needs.
These are sound business practices during any time, but they’re even more important in the COVID-19 era. While many industries are suffering, some are actually performing better. Businesses need to strategically position themselves in the market to either maximize new opportunities or mitigate losses.
The full impact of the coronavirus pandemic on the Arkansas, U.S., and world economy is still unfolding. Fortunately, useful information is available regarding the outlook for various industries in light of COVID-19.
Early this year, the leading publishers of industry reports for the U.S. economy started providing forecasts that reflect COVID-19’s effect on individual industry segments. Furthermore, these forecasts are being updated more frequently (monthly rather than quarterly, for instance) to keep pace with rapidly changing developments.
Let’s look at a few examples.
Dental practices were hit particularly hard in the early days of the pandemic. Many closed completely or were only able to perform emergency procedures, greatly reducing revenue. For dental practices that have been able to weather the storm, the outlook is positive.
According to IBISWorld, procedures and checkups that have been delayed due to COVID-19 present an opportunity for increased revenue as people catch up on their dental visits. Also, improved Medicaid coverage for dental care represents a potential for increased revenue. Existing practices can use this and other industry information, along with historical practice data, to more reliably forecast revenue for 2021.
But what about new dental practices with no historical data to pull from? New practices can use consumer buying data found in ESRI Business Analyst for their trade area to look at the number of people who have dental insurance and/or have visited a dental practice in the past year, then compare that with the number of dental practices in the trade area.
The janitorial services industry is a bit of a mixed bag. Since many office buildings closed during the early part of the pandemic, IBISWorld expects this industry to decline 2.7% in 2020.
However, businesses have been forced to intensify their focus on cleanliness. This emphasis on health and wellness is likely to continue in the years ahead, which is positive for janitorial firms.
Allied Market Research forecasts a global annual increase in the cleaning industry through 2022. Business owners wishing to take advantage of this opportunity must carefully assess customer needs and clearly communicate their ability to fulfill those needs.
Pet care services such as grooming and boarding also took a hit at the beginning of the pandemic but have a promising outlook. Additionally, pet ownership has increased during COVID-19, which bodes well for future demand for pet care services.
IBISWorld projects this industry to grow 1.3% per year through 2025. Coupled with changing consumer attitudes towards pets, this presents an opportunity for businesses offering luxury pet services. Arkansas companies in this industry could look at new products and services offered in larger markets for ideas that might work well here.
Since pet care spending is closely related to disposable income, GIS mapping (coupled with income and spending data to identify market areas with the greatest spending potential during the business planning process) can help owners capitalize on this opportunity.
The floral industry has been on the decline for several years. However, 2020 has hit this sector particularly hard with cancellations of weddings, funerals, and other events. As a result, the industry as a whole is expected to decline 6.2% in 2020, according to IBISWorld.
These are just four of the numerous industries for which in-depth information is available.
Any business without a strategic approach to creating value in the market is unlikely to survive, much less thrive. Neither your customer nor your bank benefits from overly generalized marketing strategies or lofty sales projections. Yet enthusiasm for the business often clouds the owner’s perspective.
Careful research leads to a thorough understanding of the market and target customers, giving businesses the knowledge to properly position themselves and effectively communicate to the right customers.
Fortunately, resources are available that can help business owners across a variety of industries better position themselves to make sound business decisions. Through the Arkansas Small Business and Technology Development Center, a range of market research tools and reports is available to small businesses at no cost.
Equipped with industry-specific outlooks that reflect the realities of today’s business environment, your borrowers can come to you with data-based projections. You’ll be more confident recommending a customer’s loan request for approval knowing that the business’s projections are built on the latest, most reliable forecasts.