If your small business is located in a suburban or urban area, the drought currently hitting the Midwestern farm belt may be just background noise on the evening news. But no matter where you are, it’s time to start paying attention, because the drought—the worst the U.S. has faced since the 1950s—is having a ripple effect that will soon affect small businesses of all stripes.
According to CFO.com, agriculture-related businesses are projecting lower sales, smaller profit margins and greater working capital requirements for the coming year and part of next. How is that shaking out? Well, CFO.com reports that CKE Restaurants, parent company of Carl’s Jr. and Hardee's, recently canceled a planned initial public offering partly because it believes the drought will weaken its operating results.
The drought means rising prices for corn and soybeans, used in production of feed for chicken and cattle, as well as in making biofuels such as ethanol. How will the shrinking crops and higher costs affect your business? If you’re involved in the agricultural chain, it’s easy to see, but many other industries will be affected as well.
Insurance companies will be hit by claims from farmers and other small businesses affected by the drought. Federal crop insurance for farmers will be called upon, which could lead to higher taxes for all taxpayers.
Banks will be hurt as farmers and other related businesses default on loans due to the poor crop. The resulting losses could leave banks with less money—and less inclination—to make loans to other small businesses.
Restaurants will take big hits. While national or global restaurant chains have the leverage to lock in low prices in advance, as this Wall Street Journal article notes, smaller and independent restaurants rarely have that kind of clout. Even before the drought, restaurant owners were struggling with how to handle rising food costs without passing price increases along to the cost-conscious consumer.
Recreational businesses will suffer. If your business has anything to do with boating, fishing or other types of water sports and recreation, you’re going to face a shorter season and fewer customers as lakes and rivers dry up earlier this year.
Of course, businesses outside these industries will face challenges too. Rising food costs affect all of us, meaning consumers who are forced to pay for groceries have less discretionary income. Be prepared now by thinking about how your business will deal with rising commodities costs and declining consumer spending.
If your business is truly hard-hit by the drought, there are options available. Visit this page for a list of resources available. Depending on your type of business, you may be eligible to apply for Economic Injury Disaster Loans from the SBA. (They’re not just for farmers.) The National Credit Union Administration also announced that more than 1,000 credit unions are increasing their lending to small businesses in response to the drought. For more resources related to the drought, visit this page.
Anita Campbell is the founder and editor-in-chief of Small Business Trends, an award-winning online publication.