Time to Short Gloom

So after this last week, the one piece of data that came as no surprise is that we’re all depressed about the economy.   A McClatchy Marist poll says 68% of Americans think the worst is yet to come in terms of the economy.  Boy, I hope this is a time when the man on the street is wrong.   Small business owners are split according to an American Express poll in terms of their feeling that their business prospects are about to improve.  The Economist / Financial Times poll of executives at large companies finds less than a quarter of them expect things to get better. 

I mostly talk to small business owners these days.  While I don’t see a statistically significant group, I will tell you the folks I talk to are managing to keep their heads above water.  I guess if you’re still in business after the 2008 crash you’re either really lucky or really smart.  (OK maybe a little of both).  Still, the idea that keeps coming up that makes me relatively optimistic (not a hard spot to find right now) is the ongoing theme of innovation. 

Productivity is down, after having a long stretch of improving.  That means net net employers have to pay more to get output in this economy with lots of unemployment.  Sooner or later that has to translate into either hiring more, or doing things differently.  Which is just another of way of saying innovation.  A Financial Advisor Benchmarking survey shows assets under management by Registered Investment Advisors were up by 20% at the end of 2010.  Now it may be that all those gains are gone after this last week – but the fact is, these advisors can’t let their clients invest in Treasuries with negative yield forever.  The crowd that is stowing cash under the mattress clearly isn’t growing, so sooner or later that capital has to be put to work. 

I don’t want to be too much of a Pollyanna, but necessity is the mother of invention, and it seems the need to figure out a better way has to be at an all time high for most businesses.  That should mean better times are not far away.  I know this has been a long slog, but watching to see businesses that are doing things differently has to be a better use of time than picking where the VIX will be next week.

Working Through the Crisis

In the spirit of focus on a solution, rather than the problem:

Here are my top five things a small business should prioritize in the coming week default or no.

• Know where you stand on important metrics.  (If you’re a QuickBooks User here are some thoughts on how to implement this advice.) When times are tough, it’s critical to understand how you are doing compared to plan.
  • Focus on collections, cash on hand and expenses. 

•  Know where your employees stand.  There’s been a lot of talk about how tough things are for small business owners, but it hasn’t been a picnic for employees either.  A new study by Met Life shows  44% of small business employees feel loyal to their employer – that’s down from 62% in 2008.  More than half of employers (54%) think their employees have a strong sense of loyalty to the firm.  A little more than a third of small business employees report they would rather be working somewhere else right now.

• What would you do if a critical person walked out the door? 

• Cash has been king for a while, but clearly it’s even more relevant than ever this week.  For capital intensive business it’s time to make sure you’re on top of either inventory or the lease / buy question.  Professional services want to monetize time.
  • If you don’t have a set of tasks that keep you apprised of key cash flow metrics (see #1) make sure that gets on your calendar ASAP.

•  Find out what other businesses are doing to cope.  There is no play book for this level of lingering economic stress combined with dynamic marketplace change.  If you have a circle of trusted advisors, continue to utilize that resource.  I’d also find out what you can about competitors, and consider giving some time to “hate-surfing”. 

• The whole idea is to find out perspectives that won’t naturally occur to you. 

•  Make sure your record keeping is where it should be.  If this year isn’t going to go as planned, knowing when you went off course is a big help.  If you think you don’t have time now, think how much less time you’ll have if you’re dealing with (insert name of unexpected crisis). 

Looking at the Jobs Numbers

While jobs data is relentlessly bad these days, for those of us still required to make a living, finding nuggets of information that can improve decision making is worth the effort of checking these numbers in detail.  I read the jobs data pretty religiously with a focus on geographic,  industry sector and size information.  There are two reasons I do this.  Honestly, sometimes seeing another area or target market that's worse off than mine makes me feel better.  It's not necessarily a productive use of time, but it does dispel some gloom.  The flip side is seeing where there might be opportunity driven by either

-  the biggest  new problem areas, or

-  specific areas of economic pick-up.

 The most recent Department of Labor jobs reports shows a decline in the number of jobs, primarily due to less employment in government.  Total public sector jobs are down by 159,000, while the private sector added 64,000 jobs in September.   For context, economists estimate it will take additions of 150,000 jobs a month to keep the unemployment rate flat.

   The data from Small Businesses is mixed.  According to the National Federation of Independent Business in September only 8% of small business owners said they plan to increase staff this year.  Contrast that with the Business Roundtable Economic Outlook Survey update that shows 31% of large firms are looking to hire.  The latest ADP / Macroeconomic Advisers data shows firms with less than 500 employees cut 28,000 jobs last month.  (Companies with more than 500 employees laid off 11,000 US workers in the same time period.)  Interestingly, really small companies (less than 20 employees) did add jobs.  According to Intuit’s Small Business Employment Index  the less than 20 employees segment grew by 27,000 jobs in September.  That still puts small business job growth at a run rate of only 1.6%. 

What stands out about this addition to the really-small business workforce is that access to credit for small business remains a big problem. The SBA loan guarantee enhancements that expired in May were renewed in the new Small Business Jobs Act, but only until the end of 2010.  While it may be hard to borrow money now, it sounds like it’s only going to get more difficult.  (Note to self, ask local bank rep about this and pass on intel to clients.) That said, somehow it's the least likely to be credit worthy that are hiring (albeit at an anemic rate).  Presumably this is a mix of the SBA program having an impact or some business improvement that produced enough working capital to finance new workers.  Hopefully this little hiring increase can be interpreted as a green shoot from the people who by necessity run the leanest businesses around.