Smart Brief Experts are upbeat about the nation's overall economic picture for 2007 but advise small business owners to be cautious. Small businesses should adopt a more conservative approach this year, watching their financial dealings closely. Economic forecasters say businesses will be put to the test on their ability to retain and attract workers as baby boomers retire. The small business sector is expected to see a constricting of the work force. Bright spots for 2007 include record high employment, low unemployment and real wages on the rise. Those gains are tempered by a continued slow housing market so the economy is expected to keep chugging along.

"I hate to say it, but businesses are going to pull in their horns," said Gene Fairbrother, a Dallas, Tex.-based consultant with the National Association for the Self-Employed (NASE). "We have a new regime coming in [Congress], and I think when it comes to industry, manufacturing and business as a whole, there are a lot of businesses that are worried about having new taxes in place."

Fairbrother told Fiducial.com that businesses will take a more conservative approach this year and people are going to be "in for a challenge." This comes on the heels of predictions for a strong retail Christmas season that never developed.

"For the first time in a lot of years the economy has hit the consumer's pocketbook, and it is very obvious," he said.

Two years ago, Fairbrother noted that gasoline was about $1.25 per gallon but over the last year it has been in the $2.50 to $3 per gallon range. Local restaurants have increased their menu prices on average from 5 percent to 10 percent, and every month it's getting tougher for them to compete.

A bear that could bite you

"It's going to be a tough call for the economy in 2007, but the word to the wise for all businesses is pull up your horns and take a close look at what's going on," he said. "You better be taking a close look at your financial statements each month. And do some financial projections and track things, because it's a bear that could come up and bite you. The smart business will be cautious."

The optimism that was present during 2006 is certainly not what it was heading into the new year, according to Chad Moutray, chief economist for the Office of the Advocacy at the Small Business Administration in Washington, D.C.

"Moving forward, I don't think we're going into a recession but [the economy] will kind of meander along," said Moutray. "The good news is we've had 20 consecutive quarters of positive Gross Domestic Product (GDP)."

In his long-term forecast that goes through 2007 and beyond, Moutray maintains that businesses will be put to the test on their ability to retain and attract workers, especially as baby boomers retire.

"We'll actually start seeing the tightening of the labor market in the technology and medical sectors," he said.

The small business sector is expected to experience a constricting of the work force along with the federal government which is going to have a large percentage of employees leaving in the next few years.

Economy will 'keep chugging along'

There are some bright spots ahead for 2007, according to the National Federation of Independent Business, the nation's largest small business advocacy group.

"There is record-high employment; low unemployment and real wages have been rising," said William Dunkelberg, NFIB's chief economist in Washington, D.C. "The job market is hugely strong, but it's very short on labor, which will certainly tighten things up. That's good news. That's more wage gains."

Overall, Dunkelberg doesn't look for 2007 to be as exciting as 2006 but says the first-quarter consumer strength will remain pretty solid, and government spending is going to move up. Those gains are tempered by a continued slow housing market, so the economy is "going to keep chugging along."

Regionally, he said the economic forecast remains in good shape across the South since "everybody's moving there, labor deals are better, the weather's better, and they have lower heating bills."

By contrast, the economic picture for the Northeast, New England and the Mid-Atlantic continues to be slow. For those would-be entrepreneurs considering striking out on their own this year, the market climate won't exactly be a tortoise-type pace nor will it be a hare's either.

"It's better than a tortoise," Dunkelberg said. "It just keeps hopping along."

Keeping things close to the vest

Frank Rosenbaum, Fiducial's director of national accounts, expects a robust economy in 2007 that's buoyed by a bullish stock market.

"Historically the third year of a presidential term has been a good year," said Rosenbaum. "We can expect the economy to do fairly well." But small business owners, he warned, have got to keep things close to the vest.

"Small business owners are cautious about interest rates and the borrowing level because of the economic pressures on inflation," he said. "It's going to have a huge affect on small businesses."

With a change of government taking place, entrepreneurs don't know the result, so they have to be proactive and fight issues that would be harmful to their business.

"People are unsure about what's going to happen," he said. "That's the problem right now, you just don't know. When these issues do arise, whether they're tax or regulatory ones, small business owners have to be on the forefront and understand they've got to do something to fight. I would encourage them to get involved and talk to their [elected] representatives."

Rosenbaum finds Fiducial is well-suited to take on more accounting and legal work in the small business sector this year since its core competencies fall right into line with the clients they serve.

"We take on the tasks that shouldn't be their main focus so they can grow their small business, opening new markets and outsourcing those things that they maybe dislike or don't have technical expertise in," he said. "We're very well-poised to work in this arena."

Stop working hard and work smart

Some industries will continue to keep growing in 2007, such as those tied to the Internet. NASE's Fairbrother sees the Web evolving to places where it's taken 10 years to gain a foothold.

"People are much more comfortable with the Internet," he said. "Security issues are improving and more people than ever are using it to buy online."

Though some businesses like eBay have positively thrived conducting online commerce, Fairbrother believes that the industry leader will not be as predominant in the future.

"They have gotten so big they can't control it," he said.

Larger businesses, meanwhile, are further developing their Internet capability. This includes being able, through the latest technology, to go into a virtual mall on your computer, turn into a store, see the products on the wall, and walk down the aisle until you find what you're looking for.

"The graphics ability is there to do it now," he said. "But you have to wait until people upgrade their computers."

This avenue will open additional opportunities for small businesses that are learning to capitalize on the Internet now rather than seeing it strictly as a competitor. Staying competitive remains the name of the game. Business owners need to adapt to the playing field.

"If you want to compete with bigger stores, you've got to stop working hard and work smart," Fairbrother said. "If you want to compete with Wal-Mart you have to operate at the same mentality. But unless you know what's going on in your business -- querying the customer and doing some intelligent marketing -- you're going to have a tough time with the competition."

STEPHEN PAREZO is the Media Manager for Fiducial.