Solving The Value Equation

2012 Economic Forecast for Small Business

The Small Business Vulnerability To A “Double –Dip” Recession

In February, in our early year 2011 economic outlook, we predicted the following about 2011: clearly there would be little to gradual economic growth in the holistic US economy, a lack of consumer spending, married with uncertainty in the real estate and capital markets. We further predicted that SMEs (small to medium size businesses) would experience double dip recessionary pressures as a result of the lack of access to capital and the suppressed levels of business to business spending.

 

The recent news on GDP, which illustrated an expansion of only 1.3 percent and consumer spending up a mere 0.1 percent in the second quarter, coupled with the downgrade of the USA debt, including the lack of a longer term resolution to the deficit is accelerating the problematic economic issues facing small business; therefore it is clear to us at Ephor, the SME sector of the economy has reached double dip symptoms.

Economists say that the Great Recession began in December 2007. And for most small business owners, and for the majority of Americans, the downtown of 2008/2009 never really ended.

And what’s worse is that the economic indicators do not show signs of improving in the near-term. An Ephor Group research survey of small business owners in Q2 2011 found that the majority of businesses are underperforming (only 1 in 5 businesses are “outperforming”). In fact, we at Ephor believe that the growth rate will not improve significantly until the monthly gain in jobs is consistently 300,000 jobs or more. And, at that rate the gains would have to be consistent for over two years to bring the economy back to what is traditionally considered a reasonable unemployment figure.

We at Ephor therefore believe the symptoms of a double dip environment are clearly in place, and this downturn will continue for a minimum of the next 10 quarters.

 

Consider the following from a recent MSNBC report titled, “10 signs the double-dip recession has begun.”

1.Inflation is occurring for coffee, commodities, and other basic products which undermines consumer confidence.

2.Investments have begun to yield less and become more volatile as Americans have very few places to put their hard earned dollars, which really only include 10-year Treasuries which yield about 3 percent. The market may not be a friend to investors for quite some time.

3.Oil prices have impacted the economy as movement to and from is limited.

4.The federal budget deficit has decimated any chance for another economic stimulus package which could have been effective.

5.Unemployment is one of the biggest challenges the economy faces as people without jobs drastically curtail their spending, which will ultimately affect GDP growth. And second, is the need for tens of billions of dollars every year in government aid to keep the unemployed from becoming destitute.

 

There is no relief in sight because potential buyers worry that price erosion has not ended.

 

In conclusion, for the foreseeable future the outlook for the economy is simply not favorable and specifically for the SME sector that outlook is even further suppressed. Bankruptcy rates for the SME sector will continue to rise as a result of management and the leaders of small businesses simply not adjusting and altering their business models to reflect the exogenous economic factors that are prevalent. The businesses that will survive and prosper will make those required adjustments either thru great timing or great skill or both. We at Ephor urge all small business to seek outside help and become change agents. It is up to us as a business community to lead the economic recovery just like we have done in every economic downturn.

Let us know how we can assist you in your efforts, and best of luck in the near-term.

Read more about improving your business model, operating performance, and wealth strategy:

• Strategies for Growth in 2011 and Beyond

• Targeted Acquisition Best Practices

• "The Playbook for Success"

• Garry E. Meier Answers How To Create Wealth with the High Tech Texan

What Do the Inc. Rankings Tell Us About The Future of Jobs in America?

Inc. Magazine released their list of the top growth companies this month, and to no surprise the list is fairly representative of the top growth industries, and is likely an indicator of where jobs will be in the future. 

The following data is from Inc 500 (published August 2011) reporting on company information for the period from 2007 to 2010.

The summary of the companies highlights the shift towards information services and technology-centric jobs.

• On average the Inc. 500 firm added approximately 24 new full-time employees per year.
• The majority of the companies (approximately 2/3) above are predominantly “services-oriented.” 
• Interesting that Human Resource and Real Estate had the highest average revenue per employee.

 

What do the Inc. rankings tell you?

 

Do you have the right controls?

Do you have the right controls to be an effective leader?   

• To what extent do you have the ability to direct your resources to be their most profitable in real-time?
  (Job Costing Controls, Pricing Intelligence)
  
• Are employees working on the right job, at the right time, at the right labor effectiveness rate, with the right outcomes? (The Right Quality Controls)
  
• How profitable are you? Do you know your profitability by project/client/team?  If profits can be measured after the fact; then why not provide this information to managers in real-time? (Profitability Controls)
  
• Are you alerted when behaviors change and variances occur?  Protect yourself against mistakes, reporting inaccuracies, fraud, and changes in behavior (employee productivity, cash balance, or AR balance by client for example). (Variance Alerts, Benchmark Notifications)

 

Controls have existed from ancient times to ensure accuracy. In ancient Rome there was a dual administration, with one set of bureaucrats charged with collecting taxes and another with reporting the collections.  Early in the history of the United States, multiple controls were established via Departments (Department of Health, Transportation, Treasury, etc.).

In modern times, when the majority of employees have Internet access to files and records anytime, anywhere; risk management controls are required.  And for majority of businesses today, the profitability of the company depends on employees’ daily activities.  Like ancient time, controls are required.  However, in today’s world, controls can be automated and improved through technology. 

 

All managers require controls to be leaders because leaders need to know in real-time  how well the business and people are performing. 

 

To be effective, it is essential managers have the controls in place they need to govern and lead such as profitability analysis, reliable forecast analysis, variance alert notifications, and the operational intelligence to connect daily execution to the company strategy and corporate objectives.

 

Management Science controls includes the following benefits: 

• Accuracy of reporting, eliminating fraud and
  protecting the organization’s resources.
• Authority workflow processes: policies and benchmarks can be established and reported via alert notifications when variances and or thresholds  are approached.
• Contribution analysis (profitability analysis).
• Expense management to ensure no surprises.
• Performance management: waiting until the end of the quarter to evaluate performance is an untenable position in both this economy and also in today’s fast paced world.  The ability to have financial reports, operational measures, and people key performance indicators on a real-time is the difference between  break-even cash flows and best-in-class profitability. 
• Predictability: Using forecasts and indicators, weaknesses in the business can be identified before they reach crisis stage and allows the manager to make the necessary changes and adjustments before major problems develop.
• Productivity: Management information systems deliver measurement and metrics for key resources and employees.
• Risk management controls against:
  • Errors, mistakes, malice, mischief, fraud, theft. Protect your assets: both physical (e.g., cash and property) and intangible (e.g., client lists, brand reputation or intellectual property such as trademarks).
  • Variance: control procedures ^{(sometimes called operational controls or financial controls)} reduce process variation, leading to more predictable outcomes.
• Spending controls.
• Supervision or monitoring of operations and activities such as:
  • Top-level alert notifcations of actual results versus organizational goals or plans.
  • Routine, periodic and regular operational reviews, metrics, and other key performance indicators (KPIs).
  • Controls over processing (a variety of control activities are used in daily processing tasks). Examples include edit checks of data entered, accounting for transactions in numerical sequences, comparing file totals with control accounts, and controlling access to data, files and programs.

   

It’s important that all managers have controls so that they can be effective.   What we have found over the years, having assessed and worked with hundreds of businesses, is that the majority of leaders do not have in place the controls (reporting and workflow processes) needed on a real-time bases to ensure operational execution matches the corporate objectives.

 

At Polus Group (a portfolio company of Ephor Group, LLC and a provider of Management Science via outsourced F&A), we ensure companies have the right controls to drive accountability and performance.  Polus Group was founded to give control back to its leaders. 

 

Learn more about gaining controls with Management Science and the benefits of outsourced F&A via our website:

http://www.polusgroup.com/managementsciencenews.asp

 

And remember: It’s What You Know, and When You Know It. Management Science Drives Performance.