The Economy and Your Business

Over the last 18 months, the economy rocked businesses, both big and small. After taking so many hits where it hurts—the bottom line—many business owners are wincing at the thought of trying to get a sense of how global economic conditions will affect them in 2010. Like a proverbial Band-Aid, it may be best to just get it over with, and quickly. Recently, executive editor Daria Meoli interviewed Alan Beaulieu of The Institute for Trend Research to find out how economic trends will affect small businesses in 2010.

Daria Meoli: In general, what will the recovery look like for small businesses in 2010?

Alan Beaulieu: If you want one term for it, it would be “mild.” It’s uneven, because not all parts of the economy move in the same direction at the same time. Most small businesses are going to notice stability in the first half of the year, and some improvement in the second half, overall. But the second half of the year is definitely going to be stronger than the first half.

DM: What opportunities should business owners be aware of?

AB: Opportunities will vary; they should look for ways to protect themselves from the inflation that will be coming later. So, they should take advantage of what are likely to be the lowest interest rates we’re going to see for a very long time, and buy some inflation-adjusted assets. Spend some money, and buy commercial real estate in 2010. Buying things like that will give you a positive cash flow and increase your value. Create some wealth. This is a great time to do that.

DM: Does that advice hold true for acquiring companies, as well?

AB: Yes; look for companies that are tired. Look for companies that are running out of cash, and are willing to sell. In order to get ready for the upturn in 2011, you should invest in your own business, too. As we head into this time period where the economy is kind of languishing along the bottom and nobody’s excited, it’s a time for you to ask yourself, “If I’m 15% busier next year, do I have any bottlenecks? Am I going to be slow in deliveries? Do I have the right production people? Do I have the right salespeople?” Figure out where you are weak and use this time to strengthen the team through training and hiring. Don’t wait until the market is back up, because you’ll lose market share while you’re diddling around.

DM: You mentioned inflation. What kind of inflation can we expect next year?

AB: Over the next year, virtually nothing will change on the consumer price index, and that is where most people look to find inflation. But underneath that, we’re going to see inflation beginning to perk up next year for the producer price index, which includes construction materials and energy costs. Inflation in the producer price index will start to show up in the consumer price index in late 2010, but in the meantime, you’re going to have people saying there’s no inflation. There will even be people saying that deflation is a greater issue, but those people are wrong.

DM: If the consumer price index won’t change until later in the year, how will that affect wages?

AB: With unemployment over 10% as we end 2009, and staying above 10% into 2010, there’ll be no wage inflation. And, without any wage inflation and without people getting paid more, when inflation does begin to show up in the consumer price index, it will hurt. If prices go up 3%, but people haven’t gotten a raise, they will fall behind in their standard of living. Where there’s high unemployment and nascent inflationary pressures, it’s uncomfortable for people. That will shift in 2011.

DM: When will there be a global recovery and how will that affect small business here?

AB: Early in the year we’re going to find export activity picking up. The weaker dollar and the global recovery bode well for that segment of the economy. Exporters will love it, and the people that do  business with exporters will love it. For example, the janitorial company that lost some accounts when companies went out of business in 2009 will be cleaning the offices of a company that exports around the world because there’ll be growth there.

DM: Will the climate for lending improve at all?

AB: The short answer is, no. Lending is still 11% below what it was a year ago. Commercial and industrial lending is still exhausted. There’s no sign that it’s going to change any time soon. It’s a pretty long discussion as to why, but the bottom line is that people should understand that banks don’t need any more real estate as collateral. The last thing banks want is your office building as collateral. They’ve got plenty of those. That leaves small businesses in a tough position, as they often don’t have a lot to offer in the way of collateral.

Small businesses should look for solid, small banks. There are lots of smaller banks that want to make loans, and are looking for new customers. They’ll want you to switch your deposits and banking activity over to them, but they are not burdened by being partnered with the federal government. They don’t have the same restrictions as bigger banks. They have reserves, and they’re not looking at a crushing load from commercial real estate failures next year. I would encourage business owners to do a lot of shopping and to switch their focus to smaller banks that are healthy.

2010 Economy—The Quick and Dirty for Small Business