No Recession For
Small Businesses
It's amazing how
the news feeds on both fear and greed. Since the Fall of 2008 the media
has mostly been consisted of fear. The headlines gripped the increase
of the probability of a recession this summer from estimates from 33%
to 50%. The news headlines and articles did everything to scarce their
readers. We advised our clients to hold their course and not to panic.
Now the probability is 11%.
Picture:
Volatility may be fun for some, but in business it is more of a stress
and sinking feeling.
What Just
Happened?
In recap, what
would you call a year when revenues are up 15 - 30% and profits are up
the same or higher? Pretty solid? Fantastic? Awesome? Amazing? Nope!
During 2011 the majority of small businesses have seen this growth.
What is the
outcome? Frustration and Stress! The frustration includes minimal or no
cash, working capital or equity to go after opportunities. The stress
includes higher profits than cash flow due to catching up account
payables and required debenture repayment.
Many small
business owners biggest issue is the balance of "working in the
business" versus "working on the business." Risk will
need to be taken to hire low level and low paying employees to allow
the business owners to work more "on the business."
Media Continues
With Fear
The fear
continues with the media, but on well-known problems. Take, for
instance, the PIIGS, which stands for Portugal, Ireland, Italy, Greece
and Spain. The news took every ounce of fear they could get from a
Greece debt default. As soon as everyone was comfortable with Greece
the media needed a new fear factor. The past month or so new fears
include the Italian debt default. This was already a known factor. But
the fear is causing reactions which should have already been a
component of the equation. What's next a Portugal or Spain default?
More fear, but more known information.
Fear is a
powerful force. Stress reactions are irrational. Business owners and
individuals are already behaving irrational with their word selection
and actions. Additional fear may have minimal effect. However, I may be
under-estimating power of fear. In retrospect, greed appears to be
better than fear.
Can the
Government Do Anything Right?
The concern is
the lack of solutions by both the private and public sectors. The
political rhetoric on both sides is full of half-truths. No leader
wants to take responsibility and make a hard decision based on facts.
Until a leader rises, our political rhetoric and ineptitude will
continue.
The Super (dud)
Committee could not resolve anything. The result, the markets lost 5%
of value and the American political process proved its stubbornness and
arrogance. "Compromise" is in neither party's vocabulary.
Where is American great leadership?
Are We Really
Capitalists?
The US has bailed
out the auto makers, airline industry and the financial industry during
the past decade. A recurring thought to me is "are we really
capitalists?"
In Europe
instead of just bailing out industries they are also bailing out
countries!
Tell Me 2012 Will
Be OK?!
So what is in
store for 2012? For small business the first six months should be
stable. The "boring" economy in terms of growth will not
apply towards the volatility.
Small businesses
should see growth in 2012 even if larger mega-corporations suffer. Why?
Small business is getting is mobility back. The painful, frustrating
and stressful debt repayment is occurring right now for small
businesses. This financial repositioning will allow local businesses to
adapt more quickly to the economic environment and find niches to
profit from while larger corporations are slower to react.
2012 should
start off as a very solid year (please note the volatility once again).
However, the stress and frustration from 2011 may continue. Until small
business corrects its balance sheet they will continue to experience
stress and frustration. To correct the balance sheet, businesses must:
- Build
Cash
- Build
Collectible Receivables
- Manage
Inventory Effectively
- Reduce
Accounts Payable
- Reduce
Short-term and Long-term Debts
- Build
Equity By Leaving Profits In The Company
This will take
more sacrifice and patience than I would like to write about and admit
to. Difficult decisions and conversations with advisors will be had.
Prepare yourself to hear:
- "you
can't do that"
- "that
is not in your best interest"
- "work
harder and work smarter"
- "continue
to sacrifice"
- "hang
in there"
- "you
can do it"
As business
owners and individuals you will continue to feel stress, be frustrated
and upset. You will ask yourself "how much longer do you need
sacrifice?" The answer is until all debt is one times equity or
less and current assets (cash, collectible receivables and saleable
inventory) are twice as much as current liabilities (accounts payables,
credit cards payable, line of credit and other short-term payables).
