Posted by Eric Hubbs on Thu, Jun 03, 2010 @ 01:54 PM
By Eric Hubbs
How does the saying go, "Don't count your chickens before they've hatched?" This seems to be the theme of our current economy. Word on the street is it's getting better and that there is a visible growth trend; however, it's crucial for business owners to understand what is generating the momentum and to remain cautious and calculated in our financial decisions - as difficult as it may be.
Beacon Economics presented their 2010 San Luis Obispo County Economic Outlook at the Paso Robles Event Center yesterday. Principal Christopher Thornberg and Director of Regional Research Brad Kemp spoke to a group of Central Coast professionals and delivered their economic forecast. While optimistic about the trends and growth, they remained realistic that we are not out of the woods yet. The primary sources of the spending increase are not sustainable. The equity market is up - good news - but based on the facts, the P/E ratio is overvalued, and it is evident that the market is not consistent. Even with the impact of the government stimulus, of which less than half has been spent, it's just a cushion for the moment, not a solution. And it's not an infinite resource. If we do not make educated decisions right now, we may find ourselves backpedaling.
They cited serious structural problems, a politically motivated band-aid covering the severe financial wound. Rob Garcia of Rob Garcia Wealth Management compares it to a poorly run business thriving in a good economy - the problems don't surface until bad times, and then it becomes that much more difficult to save the struggling business. He said until structural adjustments are created and implemented to improve the business operations, "it's like kicking the can down the street."
That's not to say there is no hope, because the good news is - there is! There is opportunity, and it takes creative actions to recognize and capitalize on them. Although numbers indicate San Luis Obispo County has experienced an extended recession, greater than surrounding counties, they also indicate we have faster recovering markets within arm's reach. Businesses within San Luis Obispo County can target these outer local markets and tap into their potential. Utilizing powerful resources to gain real knowledge and understand the present trends is vital, and can have a tremendous impact on the success of your business.
To help you make more educated decisions, view or download the 2010 San Luis Obispo County Economic Outlook presentation by Beacon Economics at http://www.beaconecon.com/.
We want to hear from you. Please share your thoughts, reactions, and creative solutions by commenting below.
Posted by Eric Hubbs on Mon, Nov 02, 2009 @ 02:09 PM
By Michael Gunther, Founder and President of Collaboration Business Growth Specialists
What's Scary this Season?
It's Halloween season; traditionally a time of fright and horror, but who could have predicted that our biggest scare would come from lending institutions? Small businesses make up the majority of jobs in the United States and it is their strength that also determines the strength of our economy, yet the financial industry is making it more difficult for small businesses to thrive in our current economic times.
Over the last six months, credit for small businesses has tightened up in numerous ways. Here are some examples:
- Advanta (credit cards for small business) has been a leading provider of credit to small businesses. Last May, when the company closed all of their small business credit card accounts, close to 4 million small businesses were impacted.
- Last spring, American Express closed hundreds of thousands of lines of credit for small businesses.
- Banks have tightened credit to most manufacturers. This is impacting numerous businesses that are no longer able to gain credit terms from their manufacturers to purchase the goods they need to provide their product or service.
- In the past, many business owners have used their Home Equity Line of Credit to fund their business. Bank of America and other banks have started closing or decreasing lines of credit.
- Now we learn that Citibank and Chase are beginning to increase their interest rates to 29.99%. This is not due to poor payment record; rather, it is because these companies are trying to beat the new legislation taking effect in the next few months that will prohibit them from raising their rates so randomly.
I am not suggesting that businesses do not need to manage their debt; what I am saying is that for small businesses to expand and grow they need capital, and for the majority of small businesses this means they need to obtain credit. Yet credit has become and continues to become even tougher to obtain during this "Great Recession."
While financial institutions need to begin loosening up their funds to truly get our economy back on track, the government also needs to step in. Funds to support lending for small businesses were less than 1% of the original total stimulus package. This week, the Obama administration has floated some new ideas to support community banks in lending funds to local businesses. Right now it is an idea with few specifics; but as business owners and concerned citizens we can help this initiative come to fruition.
In addition to managing debt, let's take some other proactive steps. First, meet with your local banker and build a stronger relationship with them. Keep them informed of how your business is doing and let them know what your current and future cash needs may be. Second, evaluate all your credit card accounts and lines of credit. Have your rates been increased? Do you really have enough credit to support your growth? Lastly, remember that credit should be used as a tool to grow and expand your business. If you are using your credit to cover every day expenses, you may need to make further financial cuts in your business or increase your sales efforts.
The Bottom Line
Businesses need cash to grow. Start by managing your debt and cash flow and then take action! Call or email your representatives in Washington and ask them to put pressure on the credit card companies that are increasing rates to unfair levels; ask them to create the necessary programs that will bring more lending to our local communities. Now is the time to act and promote our needs as small businesses.
Michael Gunther is Founder and President of Collaboration LLC, a team of highly skilled business professionals who are dedicated to assisting proactive business owners to build profitable, sustainable businesses through results-oriented education, coaching, and consulting services. Learn more at www.collaboration-llc.com.
To subscribe to our Business Blog for more helpful tools and tips for growing a profitable, sustainable business, click here.
Posted by Michael Gunther on Fri, Sep 18, 2009 @ 06:22 PM
By Michael Gunther, Founder and President of Collaboration Business Growth Specialists
Financials are the foundation for every business, yet they are often the most ignored aspect. Too many business owners do not understand or even employ basic financial principles in their business - some are afraid of what the numbers might tell them and others have never been taught how to manage their business financials.
Okay, I can hear the yawns already. But what if I told you that there are two basic principles to help you better manage your money and grow your business profitability? Would that give you incentive to pay attention to your financials?
Principle #1: Understand your Gross Profit % (aka Gross Margin)
Understanding this number is a vital step toward creating a financially thriving company. Let me provide an example. Say a business generates $100,000 in revenue and they have $65,000 in Cost of Goods/Services Sold (the total cost of delivering a product or service, including commissions, merchant fees, etc.). This means their Gross Profit is $35,000 ($100,000 - $65,000 = $35,000) and their Gross Profit % is 35% ($35,000 / $100,000 = 35%).
So far, so good. Now, let's show the importance of Gross Profit when making a business decision. Say this business wants to spend $1,000 on a new ad campaign. They just need to increase revenue by $1,000 to cover these costs, right? Not so; based on our example, if they earn $1,000 only 35%, or $350, is Gross Profit and the other 65%, or $650, goes right out the door to deliver the product or service (Cost of Goods/Services Sold). One way to think of it is they have only $35 left for every $100 generated.
To pay for the $1,000 ad campaign, they need to increase revenue by $2,857 ($1,000 / 35%). It's easy to see that if a business doesn't understand this principle they can make financial decisions that are hazardous to their business.
Principle #2 - Manage Your Business with a Cash Flow Statement, not a Profit & Loss Statement
Now let's take a look at why the Cash Flow Statement is so important. Some owners make the big mistake of thinking the Net Profit number on their Profit & Loss Statement is what they have in cash to spend. Once again, this is not so. The typical Profit & Loss Statement does not reflect principal payments you make on any loans you are servicing nor does it reflect any draws that you take instead of salary through a payroll check.
If you look at your Profit & Loss profit position to manage your cash flow (instead of your Cash Flow Statement), you will struggle financially - even when your Profit & Loss Statement states a profit. You'll be spending cash that you don't actually have.
Bottom Line
Business owners who understand and apply these two principles have more control over their business financials and business strategies, allowing for better financial decisions and ultimately a profitable, thriving business.
Michael Gunther is Founder and President of Collaboration, LLC, a team of highly skilled business professionals who are dedicated to assisting proactive business owners build profitable, sustainable businesses through results oriented education, coaching and consulting services. Learn more at www.collaboration-llc.com.
To subscribe to our Business Blog for more helpful tools and tips for growing a profitable, sustainable business,
click here. For free downloadable business tools to assist you in growing your business, click here.