Surviving the Coming Inflation

Bill Warner Wednesday, February 18, 2009

What a month for “change.” Most of what changed this month was the administration’s mind about their promises they made during the campaign. They are certainly masters of words while simultaneously deceiving the public. As if we were all incapable of understanding the issues, we are simply asked to “believe” their words while behind the scenes something entirely different is happening. This reminds me of parents saying to their children, “do as I say, not as I do.” As emerging entrepreneurs and business owners, you should not curb your optimism and drive for success. You should see right through this fog and keep your eye on your goals.

Promises immediately not kept

You are seeing many broken promises, some of which matter and some of which don’t. Here are some of the promises and implications:

  • No lobbyists in government – The administration is now full of former lobbyists and after one month the cabinet is still not filled. But, this is not new. The promise was hollow from the beginning and we should not have expected anything different.
  • Honesty in government – They proposed and now have tax cheaters in the cabinet, one actually running the IRS and they are purposely overstating the significance of issues in order to sell their programs. Although worrisome, and probably more revelations to come, in this day of broad media coverage and internet communications, these issues will come to light much more rapidly where they can be addressed. It’s harder to hide dishonestly today.
  • Reach across the aisle to Republicans – The stimulus bill was created by the most left wing factions for the House with no consideration and involvement by house republicans. The stimulus package will truly harm our economy, but knowing that it will drive inflation means that we need to do things to brace for it. We will survive this as well.
  • Open government – The stimulus bill was done in closed rooms, with little communication to the public as to what is actually in it; nobody read the final version. Well, the liberals won and they have the power to act this way. I doubt that the outcome would have been any different even with bipartisan involvement.
  • Transparency in what government is considering – There has been no visible communication of what the stimulus bill has in it and what the bank bailout will have either. This was more campaign rhetoric that was never going to happen, and it is not new. Just more of the same.
  • No earmarks – The stimulus package has earmarks integrated in the bill; it’s the biggest compilation of earmarks/pork ever passed. Many of the items in the package will be harmful to business as the government gets more involved in regulating what you can and cannot do. We all are just going to have to make noise through our representatives as we learn more about what is really coming.
  • Accountability in government – We still don’t know where the first bank bailout money went, and we saw the House committee bumble through their incompetent review with bank executives. There’s not much we can do without a change of the players in the administration and congress. As this gets further messed up, voters are going to get angry and maybe make some changes in their representation.
  • Economic growth – Government-paid-for jobs don’t produce lasting economic growth; the jobs last only for as long as the government projects last. Tax reductions for businesses sure would produce lasting growth. We just have to accept for now that real economic growth through reduced regulation and lower taxation is not going to happen without a massive change in congress two years from now.

History has proven that this kind of response to a recession doesn’t work. People who have proven it are Woodrow Wilson, Franklin Roosevelt, Lyndon Johnson and Jimmy Carter. Countries that have proven it are the USSR, France, England, Cuba and many others. Now, we are going to throw trillions at it to see if that will work.

Headed to further economic decline

And, there are many other broken promises, but I don’t need to depress you further. These are our worst fears coming true. In addition to being very bad news for small businesses and entrepreneurs, we are now on the fast track to socialism with more and more centralized government control of our lives and our businesses. We are reinstating welfare programs.

We are redistributing wealth under the guise of tax cuts. We are printing more money now than has been printed in the whole history of the Treasury. Within two years we will have runaway inflation with soaring prices, massive unemployment, skyrocketing interest rates, flattened if not declining growth and debt that will put us on the brink of bankruptcy as the administration raises taxes in order to pay for the mess that was created.

In 2010, we will have another chance to replace many of our legislators with ones that really believe in capitalism and are competent in managing the economy and our national defense.

What do entrepreneurs need to do now?

Although our government is in the way more than ever, creating companies is still a viable undertaking for entrepreneurs. With unemployment increasing, more people are considering this. If you are a business owner, you will need to really put more discipline into the management of your current business. Here are some things you should focus on to protect yourself from the coming inflation:

  • Look for markets that will exist even in inflationary times, those that will be needed under the most difficult of times. Look for the high “must haves” that will withstand budget cuts.
  • Stay away from businesses that require government subsidy in order to survive. The subsidy will be very volatile during an inflationary period as the administration tries to prioritize them.
  • Stay focused on US markets. Other countries are suffering from recessions too and business will be suffering just as much.
  • Create a well thought out business plan that clearly shows how you are going to decisively entire and survive in an attractive market. Knowing how you will actually do this is going to be essential to hold investor commitment.
  • Make sure you have realistic expectations for sales supported by competitive prices. Redo your sales forecast by talking with your customers to see what changes are happening in their buying behavior.
  • Cut your cost and expense so that you show a profit from your updated sales forecast.
  • Invest in cost reduction programs with quick paybacks. This could give you some competitive edge and help offset eventual rising operating expenses.
  • Manage your business with positive cash flow as your primary objective. Monitor this frequently and try to negotiate more favorable terms on receivables and payables.
  • Get credit from banks that didn’t take the bail-out money; they are the ones not in trouble.
  • Don’t hire people you don’t absolutely need and let those go that are not essential to survival in a down economy.
  • Outsource services at discounted prices, keeping a higher percentage outside services rather than hiring additional people.
  • Align yourself with experienced business partners, even bringing some of them on as cofounders of your business.
  • Use more technology and the internet for marketing, sales and support; reducing staff and contractors accordingly.

Our government is a disappointment, but entrepreneurs and business owners are not. It doesn’t look like we are going to see a needed tax reduction to help businesses become more competitive and invest in growth. We are going to have to rely on each other. Get help from seasoned business professionals to get the best advice on how to navigate the road ahead from those who have been down this road before.

Filed Under: Business Operations, Managing Business Financials, Business Strategy and Planning



Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

Great article! I wish we saw more gutsy pieces like this in the media.


Brian Gossett
Wednesday, February 18, 2009

Thanks Brian. Glad you found it valuable.

Bill Warner


Bill Warner
Wednesday, February 18, 2009

Yep, you went out on a limb with that one. But when you’re right, you’re right.

All us Joes (six-pack, plumber, etc.) are going to be punished for a national lack of foresight and self discipline. But as King Solomon would say during good times and bad, “This, too, shall pass.”


Aharon
Thursday, February 19, 2009

Yup, hopefully this too will pass in the next election, two years from now…....................Bill


Bill Warner
Friday, February 20, 2009

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