I”™m trying to understand more about what”™s going on with the economy to help me make better plans with my business. Can you help?
There are many short- and long-term challenges that have come together to overwhelm our economy over the past several years. Throttling up the activity in small business can speed things up considerably.
Like all boom and bust cycles, this one has already started to turn up and will continue to do so. And this won”™t be the last.
Where do we turn for opportunity to get out of this recession in the fastest, healthiest way possible? Small business. Small business is the acknowledged U.S. leader in job creation, job training and entry-level job opportunity.
Challenge No. 1
Remember the Reagan-era economic policy of top down, trickle down? Increase cash available to the wealthiest segment of the economy and their spending trickles down to stimulate earnings, spending and savings with lower levels of the U.S. population. Redux in Bush 1, double redux in Bush 2. It didn”™t work.
While tax breaks increased for the wealthy, that additional money didn”™t trickle down the way it was supposed to. Tax breaks didn”™t turn into proportional increases in revenue, savings or jobs for the masses.
We have to reverse our tax policy to a more equitable system that creates funds to fuel growth in small business, training for the lowest level of our economy and re-employment for larger numbers of workers. Partner the wealthiest members of the economy with small businesses that can create jobs and train the lowest levels of workers.
Challenge No. 2
In a recession, lending approval shifts from opportunistic to hard assets. Concerns about who will and won”™t make it through the recession cause lenders to be more cautious about what loans they approve.
Unfortunately, our economy is now some 70 percent service based, and most service companies do not own hard assets such as real estate or equipment of any significant value. They have been minimizing earnings each year in order to avoid taxes. Their accounts receivable, after two years of recession/collection, is unlikely to be significant enough to leverage.
All of these factors make them poorer credit risks.
Small businesses will have to pay off existing debt and self-funding expansion. Growth without additional debt will eventually turn into good news in the form of greater profitability without the need to service additional debt.
Challenge No. 3
The housing bubble has resulted in 19 million vacant houses, which will take years to absorb. There are also pockets of overbuilt commercial space.
Construction historically has made up more than 50 percent of the small businesses operating in the U.S. With a hard stop in new construction, workers and companies are going begging for income and opportunities to stay busy.
This turns around only when we get excess housing and commercial capacity used up, which means selling and renting at significantly lower rates.
Challenge No. 4
We”™ve seen in excess of 3 million jobs lost through this recession. Long-term unemployment is nearly double that of any previous recession (45 percent at 27 weeks, vs. 26 percent in the 1980s”™ recession).
At the end of 2009, 15,267,000 people were out of work. The job engine is starting to sputter back up, but opportunities are uneven. College graduates”™ unemployment is only 5 percent. High school graduates are at 10 percent, about the same as the overall rate of 9.5 percent. Those without high school degrees are seeing 15 percent unemployment and unlikely to get decent job offers until those in the previous two categories are fully employed.
There are some 6 million companies in the U.S. with fewer than 500 employees, 5.4 million of those have fewer than 20 employees. Teach those companies how to increase revenue, operate and exit more profitably. Help those small businesses gear up by targeting work opportunities toward them.
If each small business added one-half person, we would replace all 3 million jobs lost. With only $75,000 in additional non-product-related revenue a company can afford to hire that additional one-half worker.
Fuel the growth of small business, such that each can afford to hire one to two workers, and we would put half of the unemployed back to work. Give small businesses incentives to reach into underserved communities and create training programs and employment for motivated workers. Create affordable housing in communities with jobs, and give small businesses incentives for relocating into underserved communities.
Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. Questions may be emailed to her at AskAndi@StrategyLeaders.com or mailed to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Phone: 877-238-3535. Visit www.AskAndi.com for archived Ask Andi articles.
