Business Advisory Blog Business management information from Robert Griffin.

July 22, 2010

Econometrics Continued

So with the economy significantly changed away from the traditional hard manufacturing base to what I would refer to as soft sector based we have to find a new interpretation of what an “Improving” economy looks like versus what a “recessionary” economy looks like.

Lets take jobs. Soft sector jobs, i.e. IT (Hardware and software), and Services (legal, financial, insurance), are areas where output can be increased without a proportionate increase in people, i.e productivity gain. Then when people are added they are professional level people.

On the other end of the spectrum services such as fast food, and hotel and restaurant jobs may increase in relation to the economy but are these real living wage jobs? Is this disposable income or survival income?

So then what’s in the middle? Where are the jobs for those that didn’t or couldn’t go to college, and yet paid a living wage? Answer, those jobs left with the manufacturing work and are now off shore.
If we want to know how the economy is doing jobs is a very important factor and just counting the number of new jobs is useless, all jobs are not created equal. What kinds of jobs and at what pay level is even more critical.

Robert V Griffin

July 12, 2010

Econometric measures “RIP”

Filed under: Griffin Advisory Service — Tags: — Robert Griffin @ 8:47 am

The way we have always known the condition of our economy, and therefore our own probable financial well being, was to look at certain things we tend to refer to as economic indicators, like GDP, Unemployment Rate, Productivity, Inflation, Balance of Trade, etc. And as one looked at these they tended to tell us how we were doing in an economic sense. For example, if GDP is going up, then most likely Unemployment is declining and inflation is minimal, or at least acceptable because people are working and therefore have spendable income, and businesses are making money due to sales growth and productivity gains. There were of course periods where one of the indicators was trending in the wrong direction but that was usually the result of some specific circumstance like the price of oil impacting inflation. Those things tend to be outside the proverbial box, i.e. the economy, where all the other metrics are interrelated.

And there in lies the problem.

  • We have exported our manufacturing out of our control or certainly reduced our influence on it.
  • We have exported the jobs of the average worker
  • The possibility of a balance of trade is now a distant and fading memory

So our economy has changed significantly and we now have much more external, out of our controlso to speak, aspects to it than ever before. That said, how do we now read, interpret and react to the economic indicators that we have always relied on?

More on that next time.

July 1, 2010

Risky Business

Every business is at risk every day of having something happen that has a significant negative impact on that business. Ask BP!

Well, no kidding, everyone knows that.

Okay, if everyone knows that, how come so few can tell you what those risks are? (Besides the standard – lost sales, higher costs, and declining selling prices.) Worse yet, few of those who have at least thought about it that far, know what they’d do if any or all of those things happen.

So what else could go wrong?
• What if a key supplier goes out of business?
– Do you know how financially strong they are?
– What would you do? How long would it take to qualify a new supplier and get material?

• What if your bank calls your revolver or changes the terms so you have to write a big check to meet covenants? Do you have the wherewithal?
– You say, “That can’t happen to us. We have a long standing relationship with our bank and we’ve always met our covenants.” Well, you’re wrong. The board at the bank can vote to change terms anytime they want. It may have nothing to do with you. Maybe they just want to lower their risk profile; maybe they feel they have too much out in commercial revolvers in this economy. Whatever the reasoning, you will be impacted. Point is: they can change any time. I’ve seen it, and you will have to deal with it.

• What if you have a major business interruption, for example, a local power outage for two weeks. It happened here in Central MA two years ago. Or what if your business had a fire or other unexpected catastrophe?
– You can’t deliver to your customers. How will you get back up and running? And how long will it take?
• Your customers around the country and the world don’t know, nor care, about your localized problem. They’re worried about their own business. How do you keep them or get them back?
• Do you have business interruption insurance?
– If so, you’ve had to go through the steps of planning for this.
_ If not, you should at least look at planning for this type of occurrence.

Bottom line: You need to think about the things that can negatively impact your business and plan for them so you don’t become the BP of your industry. Obviously, even very deep pockets do not replace good planning.

As Dwight Eisenhower said, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.”

Robert Griffin

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