I got a call from the owner of a (high-end) cannabis producer and during the conversation I asked if they are profitable. She said 2020 and 2021 were profitable but 2022 will be breakeven as the industry is in turmoil. Of course, I asked, why?
She said, “Because the stimulus money ran out.”
That brings us to Econ 101, supply and demand and price elasticity. A lot of “free” money drove up demand. The lack of said money made shoppers more conscious about their decisions. The owner said more people were buying lower quality products for a lot less money. This is price elasticity; the price of what I want is too high, so I’ll not buy it.
I’m guessing the above basic economics is something many business owners are worried about, even if they don’t think of it in terms of economic theory. Three quick thoughts on this:
Small business owners are or should be thinking about if all the easy money has boosted their business and if so, what does the future hold? In other words, was there a Covid tailwind?
Business buyers are worried about a recession and interest rates because it means they’ll need more equity for the company they want or will have to buy a smaller business. FYI, the 1.5% prime rate increase means about $450,000 more in interest on a $5 million SBA, 10-year loan.
Business sellers should have questions along the same train of thought, i.e., has their buyer pool shrunk with buyers having interest rate and recession worries?
It’s never easy, which is what makes it interesting.
“The trouble with the rat race is that even if your win, you’re still a rat.” Lily Tomlin
“A father carries pictures where his money used to be.” Steve Martin
