The most recent economic data
continues to disappoint economists. The only
reason for positive Gross Domestic Product (GDP)
growth is due to increased government
spending. This will neither be sustainable
or in the long-term interest of our
economy.
Meanwhile the government is
painting a brighter 2010 than money
managers. The US Government is projecting
the economy to grow in the 3% range where as most
money managers estimate the economy will grow
around 2%. 1% may not sound like a lot, but
it could have dramatic effects on the business
atmosphere. It can affect the mental
attitude of being optimistic versus being
pessimistic. A lower % in growth can have a
business become more conservative versus more risk
taking. A result of being more financially
conservative could be continued prolonged
corporate spending.
The alphabet has been used to
describe the recession and recovery. Will
the pattern look like a "V", "W" or "L"? It
looks as if the corporate profits might recover
like a "V" primarily due to cost cutting (i.e.
they fired a lot of their employees resulting in
high unemployment). A challenge will be to
grow revenue which appears as if it will be harder
to accomplish than previously thought. The
economy is looking like a "V", but with it
stalling ½ way up. Will the economy flat
line like an "L"? Or perhaps look like a
"W"? It is important to remember that
profits and economy are not exactly correlated to
one another.
The unrest in healthcare
reform will have a negative effect on business
spending. Any healthcare reform may take
additional months due to the Democrats no longer
having a filibuster majority in the Senate.
Business will continue to delay decisions due to
not knowing what the rules will be.
Healthcare is not the only
unknown. Lending is also an unknown,
especially for small business. Banks
continue to change the loan rules and
qualifications on a regular basis. Many
small businesses have lost the use of their line
of credit and/or have had loans called or not
renewed. Until financial institutions and
business understand the lending environment debt
financing will not be available.
The business environment
continues to change and be challenging.
Although I believe 2010 is a year to play offense,
defense is still a necessary component.
To become more prepared for
this environment you may want to hire a business
coach, part-time CFO or we provide business
advisory
services.
This year has started out
mentally optimistic for most small businesses, but
the ground is still a little shaky. The
financial earth quake we have survived is making
more individuals wanting to build their financial
foundation on a rock. Only a solid
foundation can hold true during the next financial
earth quake. During the reprieve between
shocks as revenues and profits stabilize and/or
return business owners will need to use the funds
to strengthen their foundations. To
strengthen your financial foundation you will need
to have the right balance of profit growth and
debt reduction.
