The question among small business owners (and some large) is when will the economy start showing signs of a recovery. The Wall Street Journal today published an article showing its latest forecasting survey. The results? most economists believe we are in midst of the worst part of the recession and we will not see a turnaround until second half 2009.
Small Business
Keep in mind, I am employed in a family business that relies heavily on economic conditions especially the housing industry. Our customers consist primarily of paint and chemical companies. Our vendors mainly consist of steel and aluminum companies.
What happened!!!
About 3-4 weeks ago something happened. The economy froze. Every business I have called or in which my father called agrees that something happened as that is the time frame in which things went from “OK we will stick it out” to ” oh shoot, we might not make it”. Things are ugly out there. Several good friends of mine have not been working or are considering closing up shop. Several large (and small) have begun laying people off and reduce work hour by 20-40% (working 3 or 4 days out of the usual 5). I am not talking about start ups. I am talking about family owned businesses which have been around for 40-50 years. A good friend of mine who has a successful scrap metal business once made around $1200 /ton . Talked to him to see how is doing, getting about $60/ton.He soon told me “If you read in the bible of how things are going to end, this is it, wars, bankruptcies,etc.”
Solution
How do we solve this problem? We will have to spend like never before. Unless consumer psychology switches from “save and not spend” to ” hun, lets go out” this will drag. President Elect-Obama has stated that another stimulus might be in the works. I certainly will not mind an extra check. But, unless the country actually spends it, it will be worthless. the last stimulus check I spent about 20% and saved the rest. I am pretty sure most American did the same. How to get people to spend their “checks”. First, don’t give them a check. Give people prepaid ATM’s with an expiration date on it (3 months). This ensures people will spend the $$ and will allow the government a way to track if the stimulus is working. If it is, reload those ATM’s.(whats another trillion?)
Small Business/Corporations
Lending is still tight even though LIBOR has come down a bit. Nevertheless, companies are still holding off on projects until things start slowing down. It would be nice if small/large business received some sort of stimulus package. I have several customers who need maintenance, want new equipment,etc. but are not willing to spend money right now. Several companies have gone bankrupt and I would love to go in their and purchase machines at fire sale prices. Unfortunately, I’m on the defensive and have to worry if I will be around to see the turnaround. Our business is only surviving because we have a strong market position and I would love to get stronger but I simply can’t.
Final Thoughts
I know my stimulus package (I thought about it myself ) is not the best. I know i’m not the brightest when it comes to economics ( I received a B in micro and macro). I know it has some holes like “some seniors are not familiar with ATM’s’, “What if people pay their credit card debt with this ATM of yours”. Your right. But you know what, its better than a check that people will tuck away under the rug. How about those skeptical about giving more money to small businesses? Shoot, my family business has a better chance of survival than Ford and GM combined. I’m not some politician and my proposals would probably get laughed at. I don’t care. I am in the trenches. I know what’s going on out there. You know things are bad when steel companies are calling me (its usually the other way around). 3 months ago U.S. Steel took 1 month to process an application for credit, after many calls and horrible customer service, I took my business elsewhere. Guess who is calling now?
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More detail on your family’s business would be interesting, Alex. E.g., does it do most of its business in Southern California? California entered a recession before the rest of the country and its economy is worse off than most other states.
Also, is your company in need of working capital? Has it had difficulty borrowing in this environment?
Your family business is an area where you have expert information. There’s an old saying, “write about what you know”. You should take advantage of this and offer thoughts from a small businessman’s perspective.
Dave,
Would take it into consideration. I will write a more detailed post about what we do and such and the environment.
Im no economist myself (never took an economics or finance class before) but your idea actually makes sense unlike what the government is doing at the moment.
Thanks for the review Jae