Saturday, October 18, 2008

It’s the End of the World as We Know It! Or is It?

score_tjpg_bour This article was written by Norm Bour, SCORE Orange County Management Counselor.

There is no question that the world we live in, including the business world, is changing before our very eyes. Everything we have been experiencing in our entire lives, “business as usual,” is no more, and the old rule book has been discarded. So what does this mean for current business owners? What does it mean for those who wish to become new business owners? It just means you need to read out of the new plan manual and there are some strategic areas that require new methodology.

How you borrow money and from where

Borrowing money has been a way of life for generations and during the past 30 years it has never been easier. There were a few years that were difficult, but for the most part, everyone wanted to lend you money. That is no longer the case. As of this writing, the $700B Bailout Plan is being finalized with one of the specific agendas as being the easing of the credit markets. Banks are reluctant to lend to each other and are hoarding cash. Why would they want to loan money to you? Those Signature Loans and Personal Lines of Credit will never be as easy to obtain as what they have been. The wild card is SBA and government loans. They will be more difficult to get than before, but easier than institutional financing.

Short, medium and long term planning

If you fail to plan you will be planning to fail. That old bromide still remains true, but the Looking Glass will be much more difficult to read. During the prior 18 months we have gone from the failure of the sub-prime market, to the crisis of the mortgage banking industry, which created the banking fiasco, which shut down one of our most consistent partners in the mortgage market: Fannie Mae and Freddie Mac. Shortly thereafter, AIG got an $85B safety net, and just recently Washington Mutual triggered the biggest bank failure in history followed by Wachovia which just over one year ago bought World Savings. What is particularly scary is the speed with which all these events occurred.

The moral to the story is that the future will be harder to predict than ever before. Your short term goals will probably be more accurate than not, but any long term plans beyond a 5 year window is a total guessing game.

Growth and expansion

In the past few years many companies expanded since the economy was booming, money was abundant, and the consumer was willing to spend. Those rules are also gone. How many companies have closed or significant downsized during 2008? In 2007 there were 32,000 business failures, but we doubled that number in just the first quarter of 2008. Starbucks closing 600 stores, Mervyns department stores, plus many others and a list too long to print, make these times some of the most fragile we have seen in decades.

Remember the tortoise and the hare fable and who won at the end.

Education

As these situations change with breakneck speed, the key to your financial future is education. The days of coasting along and having faith in old conventional establishment is over. YOU are in control. Continue your involvement with SCORE, whether as a volunteer or a client. Find financial counselors who can take you into this new quickly changing future. And find like minded support groups and mentors you can all learn from.

So is it “the end of the world as we know it?” The lyrics of that popular song follow with “it’s the end of the world as we know it, and I feel fine.” And you will. This too shall pass and life will go on, just with a different set of rules.