Factoring Blog - For Small Businesses

If you do importing or exporting you undoubtedly know the answer to this question. 

Generally speaking, a weak dollar helps exporters.  Why?  Because American goods or materials or services are cheaper to overseas buyers, who have to use less of their currency to meet the price. 

For those that import materials or inventory, it’s a different story.  Greenbacks don’t go as far.  It takes more dollars than it did previously to meet the foreign price.

But what if you’re one of the millions of small businesses that do not import or export directly?  What does this question mean for you?

In this era of globalization, the question is a lot more complex.  I wrote about the weak dollar three years ago, when this issue was also hot on everyone’s radar, noting at the time:

” … [T]oday in an era of globalization, the issues are more complex.

One twist is that there can be hidden currency costs. Say, for instance, the item you are buying from a U.S. distributor was manufactured outside the United States. Or let’s say the raw materials had to be imported somewhere along the supply chain. The prices of goods you buy here in the U.S. from another U.S. seller may have been ratcheted up to cover these hidden currency costs. Those price increases eventually will be passed along to consumers.

Here’s another twist: Even if you are exporting, local suppliers in other countries may be reducing their costs to stay competitive. So, in my example above selling widgets in Italy, if the Italian sellers reduce costs and can now sell their goods for 90 euros, they can undercut my price. My small business’s products no longer have a price advantage.”

How about another twist:  retailers, those in the hospitality industry and tourism-sensitive businesses are seeing a boom as foreign visitors follow the lure of bargains in the U.S. — enough to bring them here for a weekend of shopping.   

It’s like the Paul Simon song.  One man’s ceiling is another man’s floor.  Just make sure you know which end is up.

Do you know how much it’s going to cost to go over the river and through the woods to Grandmother’s house this year, in your state?

The Small Business and Entrepreneurship Council knows. They’ve developed the Small Business Energy Index to show the relative costs of energy in each of the 50 states and District of Columbia. And it’s not just the cost of gasoline that they measure, but also the cost of electricity used in our homes and busineses.

As they point out, government regulation can jack up the energy costs — that’s one reason the costs differ from state to state:

Thanksgiving is a time for families to gather together, usually around a large meal. That will involve a significant use of energy, including for traveling and cooking. No doubt, Thanksgiving is an energy intensive holiday.

However, the cost of that energy - whether filling up the gas tank for a drive to Grandma’s house or powering kitchen appliances or fueling the small businesses that serve consumers on Thanksgiving - varies by state.

Energy costs, of course, are affected by assorted factors. Obviously, it’s about supply and demand. As pertaining to oil, it’s also about various political risks around the globe. The types of energy sources matter as well. For example, is electricity generated from coal or natural gas?

But government intervention in the marketplace also comes into play through taxes, regulations, restrictions and mandates.

These governmental factors explain part of the difference in energy prices from state to state. For example, what taxes are imposed at the gas pump? What fuels are mandated by either the federal government or by the states either directly or indirectly? And so on.    * * *

At the top - or the lowest cost states - are 1) Wyoming, 1) Idaho, 3) West Virginia, 4) Kentucky, 5) Indiana, 6) Arkansas, 7) Washington, 7) South Carolina, 9) Utah, 9) Tennessee, and 11) North Dakota, and 11) Nebraska.

At the other end are the highest cost states (including the District of Columbia) - 39) District of Columbia, 40) Vermont, 41) Maryland, 42) Maine, 43) Alaska, 43) Rhode Island, 45) New Hampshire, 46) New Jersey, 47) California, 48) Massachusetts, 49) New York, 49) Connecticut, and 51) Hawaii.

Read the entire list of state rankings for energy costs. The difference between the lowest ranking states and the highest ranking states is startling. 

How is the cost of energy affecting your business and your bottom line?

Following on my post last week pointing out how things are looking optimistic for many small business owners (Is the Economy Booming for YOU?), I carefully read the October 2007 NFIB Small Business Economic Trends report.  This little nugget was hidden in the commentary:

The NFIB indicators suggest that owners have seen the “bottom” and are expecting the economy to gradually improve in the months ahead, even with housing still struggling to find its feet.   ***   Even with all the nonsense from the financial markets and the media, owner optimism improved and spending and job creation plans look better.

And that brings to mind an important point about sometimes NOT listening to the financial news. 

For instance, you can’t turn on the nightly financial news without hearing about the “housing marketing crisis.”  Certainly anything housing-related ranks among the weakest parts of the U.S. economy. 

 However, the other side of the story is that the housing market problems have  geographic differences.  The parts of the United States where housing prices had a huge run-up over the past few years have been hit hardest. They had the most to lose, this being somewhat of a fall after a housing bubble.

Some have argued that the housing bubble is really a series of smaller, regional bubbles that vary by geography. Parts of the country have not been hit as hard. Why? Because they never saw the big run-ups in housing prices and the sizzling real estate activity in the first place. Their gains were more modest during the boom times. Supply and demand tended to stay on a more even keel. As a result, the current housing slow down may not hit as hard in those parts of the country. Also, local regional conditions affect local housing markets to different degrees.

My point? 

Just this:  if you were not in a construction or housing-related industry, you may have remained relatively unscathed through this weakly growing economy we’ve been in during 2007. 

Many small businesses (mine included) react more to micro-economic factors and local or industry-specific conditions, rather than to macro-economic trends.

And so, as you hear the financial news about the housing market blues, or the subprime mess or the stock market plunging one day, consider that those factors may have little impact on your own business. Maybe they will, depending on the industry you are in or on local conditions.  But then again, maybe they won’t.

Sometimes it just pays to take the gloom-and-doom financial news with a grain of salt.  Otherwise, you could just psych yourself into a negative mindset and then it will become a self-fulfilling prophecy.

Instead, concentrate on your business — work it to make it as successful as possible.  Make sure you have sufficient cash to weather any temporary conditions.  Credit is still readily available:

– If you use credit cards to pay business expenses, you will still have those available.

– If you factor large receivables in order to speed up your intake of cash, you’re going to find factoring is available too.  

– If you use a line of credit, you’ll find that available as well.

A New York Times article published today suggests that small businesses like yours and mine may not be feeling the effects of current economic troubles, such as the subprime mess. 

In “What Economic Slowdown? Small Businesses Grow Stronger” the article notes that most business owners don’t think things are so bad:

“I travel a lot and speak to a lot of small business groups,” said Joel Prakken, chairman of Macroeconomic Advisers. “What I hear is much more upbeat than what you read in the financial press. Small business owners know about the worries hanging over Wall Street. But they are doing well. Interest rates are low, the stock market is high. They can raise money. The global economy is very strong. They can expand their global reach, and they are doing it.”

My sense is that most business owners are upbeat. And all the studies and statistics suggest so.

However, you can’t deny that the collective confidence among small business owners has been slipping all year long — not precipitously, but slowly and bit by bit. For instance, the NFIB’s Optimism Index is below its historical lows and has been all year during 2007. However, the commentary to the most recent economic report by the NFIB suggests things are positive, although growth can best be described as “weak.”

So, while the economy is not nearly as gloom and doom as the cable new shows would have us believe, right now its temperature is closer to lukewarm, than sizzling.