Unless you’ve been living under a rock and playing poker with salamanders you are aware that the American economy, indeed the world economy, is in a state of uncertainty, to say the least. There are some signs of recovery, but there is convincing evidence that since 2008, nearly all fiscal recovery has come from massive governmental money printing, and that spells trouble long term with a capital T. Here are 8 key strategies for you as a small business owner or entrepreneur to consider in the next 12-24 months.
I never read Bob and David Wiedemer’s (et al) book America’s Bubble Economy in 2007. If I did I might have missed riding the collapse of the Real Estate bubble and the Stock Market bubble and saved myself a 45% drop roughly in each. Federal Reserve green ink on paper has brought back the stock market to a large extent and there is money to be made. Real Estate is still in a state of free fall in most areas of the country.
Now I am reading the follow-up to that book called Aftershock, and it tells us we haven’t seen anything yet. The multi-bubble economy created by leveraging air (as an ex-boss called it), ridiculous deficit spending in the US and other countries, and the midnight runs of the printing presses at the Fed that have tripled the money supply since our current Commander-in-Chief has taken office is destined for another taste of poison medicine from all of the governmental fixes put in place.
Frankly this book scares the beJesus out of me by confirming with facts and figures the sense of foreboding that I and millions of others have had since the current “recovery” has begun. I invested about 30% of my portfolio in Gold and Silver ETFs about 9 months ago, fearing mass inflation. Thus far performance has been flat to crappy (silver side) since I got in. I have no fear that inflation is coming in the next 2 years in a major way after reading Aftershock. Gonna hold.
Whether you believe we’re headed for a meltdown or just have that feeling of uneasiness with the conflicting accounts you hear about the economy, there are some things you can do for your business to help succeed in this era of uncertainty. You can read Aftershock or any other newsletter or source you want to prognosticate on the economy, your call. What I am giving you here is stuff for your small business survival, not necessarily your investment portfolio (although they are related).
Avoid Variable Rate Debt
Interest rates now are ridiculously low, held fast by the Federal Reserve money printing operation which has buoyed the stock markets. So why is this a problem?
Because inflation is coming. Double digit inflation at a minimum. Revolving credit lines, credit cards, and other variable rate interest money you use for the business is going to go up dramatically within the next 3 years. There is no other possible outcome when we have tripled the supply of American dollars in a weak, not growing with a voracious appetite, economy. Start paying down your line and for God’s sake, don’t go opening a new one.
Conserve Discretionary Cash
Now is the time to conserve cash on all non-essential purchases, especially if made from your variable credit line. Don’t buy the new Mercedes, get the used one and value it on Edmunds. You may want to delay the lavish trips for right now (although you might argue that with massive inflation headed our way, spend it while the cash has some value).
Now purchases that will earn your business a nice ROI, as in double digits, you may want to evaluate with your CFO or financial advisor. It is not a bad time to lease plant equipment on a fixed rate. Asset values will be dropping fast.
Rent Commercial Space, Don’t Buy
Think the commercial real estate market has hit bottom? Think again. What may seem and be advertised like a bargain is still likely a very toxic asset. Think about virtual office expansions using an outfit like Regus. You want to avoid getting strapped to real property in the current climate until after that bubble, currently held in suspended animation by government stimuli instead of market forces, bursts again. Until 2014 or 2015, I suggest you lay off buying the real estate. No one knows the exact timing, but you’ll know it when you see it.
Avoid Long Term Raw Materials Contracts
Raw materials for industry (if this affects you) like iron, copper, nickel, and zinc, have been spiked in recent years by the activity of China’s infrastructure investments. In effect, China as a super-buyer has hoarded much of the world’s construction and industrial materials. This in fact has been the Chinese government playing games with the economy in their form of stimulus. Well, the Donald is going to get his wish, because China isn’t going to do so well either. Raw material prices will continue to fall, so next month’s prices will be lower than this month’s, and so on. Don’t get caught holding the bag of overpriced materials that you thought you got at a good price, because the write-downs could kill your business. I witnessed this first hand in late 2008 and 2009 with the fall of Nickel prices devaluing stainless steel inventories worldwide and putting many companies out of business.
Take Smaller Bites
What the hell do you mean by this Karl? Fasting? No, buying for your business. Look for escape clauses in service contracts that allow you to get out if things go south. Get very targeted in what you want. Instead of a mega-marketing strategy, find tools that are relatively inexpensive that can have rapid results that are visible (more web traffic, phone calls, etc.). Things like our SmartVu Executive Video Interviews or changes to your LinkedIn profile to kill it in networking are economical, fruit bearing expenses. Mass Google Adwords spending is not. When something works, re-invest in it, but don’t over-commit even if it means you don’t get the total package discount right now.
What about hiring talent? Be cautious about bringing on full-time employees right now. It’s not your job as a business owner to solve the nation’s unemployment woes, it’s your goal to stay in business and thrive. Where possible use contract employees even for work typically reserved for full-time services. Hire professional firms that manage their engagements well to save you from riding herd daily on lower-priced “talent” normally found overseas. The management nightmare is not worth it, so vet your sources carefully.
From a product strategy, the market may force you to adjust your minimum sales quantities and develop goods and services that are more bite-sized and carry a lower price threshold. This is inconvenient but keeps your sales pipeline turning over. America’s buying habits are changing and they will keep looking for smaller, more frequent purchases. Your customers are reading this blog too!
Hope is Not a Strategy
The biggest thing I got out of the research I’ve been doing is realizing what a big putz I was in 2008 to miss that fall. All the signs were there, but I was too busy working to see it or prepare for it and I had the belief that any downturn was part of a natural cycle, what goes down must come up. There is no rule that says that has to happen. So instead of buying and holding and hoping that things will work out, I am now choosing to get informed. You can choose whatever sources you like to get informed and make your own decisions about where things are headed, but don’t ignore the fact that despite your skill and genius as a businessman, you now need to focus on the outside world as well, because it affects your market and your business. Take off the blinders and pay attention.
Keep Your Attitude in High Gear
Look, economies rise and fall based upon consumer sentiment more than any other factor. When it swings one way or the other, a majority of people are like lemmings jumping off the cliff, buying high and selling low. You can’t ignore what is going on or coming, but you can know that by being in the know, you stand head and shoulders above the rest. Know that you will see opportunities in buying, selling and negotiating for your business and be able to capitalize. The same will apply to your personal wealth that you got from working so hard. Make sure you keep it. That confidence will influence sales success just as it always has, but differently.
Stay Light on Your Feet
If you accept that things may happen going forward and that they can happen very, very quickly, then be ready to change quickly. You may need to kill a product line, or create a new one, and may even a limited life-cycle product or business to capitalize on a very finite and short-term market opportunity. Accept that as a reality and you’ll be pulling the trigger while your competitors are paralyzed by over-analysis and fear. You win.
Refitting your office as a part of the rejuvenation efforts? www.nationalofficefurnituresupplies.co.uk can provide a wide variety of office furniture to improve the look of your new premises.
One way to get the word out on your business economically is to ease into email marketing. Check out EmailERGO at www.emailergo.com.
Has the bubble affected UK retail? Not when they’re found at Shops to Let Nottinghamshire on Completely Retail.