Trends are not friends

As we head into the turbulent waters of an election year and the backwash of stimulus reductions around the globe, smart companies that have grown over the past year will need to remember that the trend is never your friend.

As country after country discovers that recovery is good politics and business confidence renewal represents the essence of employment regeneration, it is too easy to assume that small business is going to benefit from a continued rush to spending by consumers.

First have a close look at the investor’s friendline – the graph that shows gold prices have followed the W shaped pattern that reflects the pessimists assumption that the equities market has adopted the square rooted profile.

Next take into account that the Henry Report is likely to lock in payroll taxes and redesign capital gains tax discounts and shift tax concessions towards start-up businesses rather than sell-off and trade-up business ventures. This is particularly interesting as it is the businesses that have taken on three or four staff since the worst of the GFC that are most likely to get into financial trouble with banks that are not prepared to support their growth into payroll tax scale.

Ben Bernanke points out that there are very significant risks associated with further housing and commercial property real estate markets in the US. “Bank lending remains very weak, threatening the ability of small business to finance expansion and new hiring.”

Watch our government guaranteed domestic banks continue to shift their lending towards the home rental and larger property market to secure themselves against a Tanner lead assault on tax deferral and investment manipulations by businesses that have been making a capital-labour substitution and Swann’s efforts to reward the big banks with a company tax reduction for their overseas borrowings.

While personal bankruptcies have fallen significantly during the cash splash and infrastructure rush over the past few months, Sydney Liquidator Mr Nick Crouch says: “Expect the number of bankruptcy appointments to increase in the final quarter of this year and early next year as the bite from interest rate increases take hold, the banks start to move on problem loans and the ATO gets back into the business of collecting its debts.”

Small businesses that are linked to first home buyers rather than property developments and negative gearing efforts are likely to find that the next financial year can be particularly tough on those that think that last year’s trend is their strategic planning friend. Regional banks and other small lenders are going to have to follow the lead of the big banks and start to demand greater premiums and early repayment of debts to maintain their market positions.

At the same time expect the big companies to use their liquidity and bankers timidity to rapidly expand their takeovers and mergers to convert the massive over investment in housing funding into longer term value generation for their shareholders.

As the government closely monitors their gouging of the national savings at the expense of medium scale enterprise lending, expect the banks to demand solid securities and evidence of forward orders before they are going to come to the party for SME development.

JP Morgan banking analyst Scott Manning says: “Business will want to borrow again and that means banks will have some tough decisions about where they allocate their funding – not only for the best return but also where the best growth profile is”.

Investment advisors are telling their customers to hold their nerve for the rest of this financial year, anticipate the Government deferring any steep cuts in infrastructure spending until after Federal and State elections due this year and plan for expansion in the first half of the 2011 financial year.

Under these conditions, now is the time to develop three scenarios for the future – the first for continued steady growth from current customers with great credit ratings, the second for consolidated expansion into the more profitable and cashflow generating elements of the business and third for a substantial expansion in quality sales staff to pick up the business that will come through acquisitions of exiting small business owners who want to get out before Henry gets them.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099