Today's Economy: Nuclear Winter or Once in a Lifetime Opportunity?
First, let me prefix what you are about to read by informing you that all of my retirement accounts have been 100% cash since the beginning of the year. My business carries no debt. I am also renter. As a result, I haven't lost a single penny in the recent market fluctuations.
However, others aren't doing so well. If I had to sum up the atmosphere with one word it would be: fear.
Immediate Outlook
From the unscientific poll I conducted and rumor mongering -- most freelancers/contractors are reporting little to no slow down in finding work, just that smaller businesses are hesitant to pay up right away (is that really any different?).
Conversely, on Wednesday, Sequoia Capital (a well know VC firm) warned silicon valley firms that a downturn was coming, and it would be a more protracted downturn than most CEO's expect. The advice Ron Conway gives is exactly what he said in 2000 -- lower your burn rate and preemptively fire employees right now in preparation. Cut costs to weather the downturn which could last years.
Cash is King
Alexander Muse has discovered that, at least in Dallas,some banks are freezing small business credit lines:
"You might be surprised, but more than 75% of all IT service providers utilize revolving lines of credit to finance their companies (Architel does not). The average $5,000,000 IT service provider has $200,000 to $500,000 in a revolving credit facility. Earlier this week the banks who provide these credit facilities, like Bank of America, have contacted their clients and let them know that they may not be able to draw down on the these lines [...] We have witnessed two well known IT companies in Dallas miss payroll this week." SOURCE.
Yes, you read that correctly. He goes on to predict mass business failures, of under capitalized businesses. On the political front, Senator Schumer floated the idea of making billions of dollars in loans through the Small Business Administration.
The Sky Isn't Falling
I think this is a great time to start a business, provided you are capitalized, flexible and willing to take some calculated risks. In fact, it can be argued that small businesses are being handed a comparative advantage over overleveraged businesses.
And finally, some advice that is as valuable today as it was in the 30's:
1. Pay With CASH; Negotiate a cash discount
2. Spend Less Than You Make
3 - Make the Money BEFORE Spending It
4 - Set Aside Some Money for Emergencies and Living Expenses
Labels: Business, Personal Finance, Startup
