Business Storm Clouds on Horizon?

By Maurie Cashman

Are you prepared for business storms that may be coming? We have had pretty fair sailing for the past couple of years. The stock market is at levels that were scoffed at only a few years ago and Dow 20,000 may come true. Interest rates are at “all time” (we seem to set new lows every week) lows. Fed tapering has not seemed to slow things down and the dollar is at historical highs.

However, these may be signaling a business storm ahead.

A recent Pepperdine study showed a reduced demand for–and access to–capital, both of which suggest that smaller businesses are not readying themselves for any dramatic growth spurts in the months ahead.

In that regard, the Pepperdine study mirrors what a lot of other small business studies seem to be saying lately. Namely, fears of a global recession, which could hamper sales abroad, as well as tentative consumers at home, are putting the kibosh on entrepreneurs’ optimism about the future.

Pepperdine Study: Q3-2014: Key Trends in the Private Capital Markets

In the past 3 months:

Private Capital Access decreased 0.3% compared to Q2

Private Capital Demand decreased 6.2% compared to Q2

42% of respondents report the current business environment restricting their ability to hire new employees

29% of business owners said they transferred personal assets to their business over the last 3 months

44% of respondents have financing coming from outside sources

57.5% of private businesses who attempted to get financing tried to get a bank loan; 54% were successful

26% of those who attempted to get financing applied for asset-based loan and of these, only 33.9% of them were successful

These are not wonderful signs for future growth. The demand decrease for private capital decrease is significant in that it signals that companies are not anticipating or investing for future growth, even at low interest rates available.

Forty-two percent (42%) of respondents are not planning to hire any additional employees in the next six months.

Are business owners reading the tea leaves correctly? The Federal Reserve has been backing off on bond purchases with relatively little change to interest rates. Other Reserve Banks across the world are loosening, causing a rise in the dollar even in the face of almost zero returns, making exports from US businesses more expensive overseas.

Forty-six percent (46%) of respondents are planning to hire from one to five employees if they can get financing to expand and sixty-six percent (66%) of respondents expect slower growth. Eighteen percent of businesses plan to either sell or shut down. Look around you. That means one in every five of your fellow mid-sized business owners will not be in business in a year in their present form. This is likely conservative, as mid-sized business owners tend to be optimistic and also will tend not to admit that there is an inevitable change coming to their business.

We have had a very good run in the US, and I pray that it continues. However, there is only one constant and that is change. It is important that you have a strong plan in place to manage your business and to take advantage of opportunities that may be on the horizon. That means having a capital structure in place and a written plan that supports your long-term goals and allows you to transition ownership of your business on your terms.