Tariffs are on, tariffs are off.  But it looks like they may be coming more on soon.  So far tariffs have been imposed only on things such as washing machines which now cost almost twice as much as pre-tariff.  But now tariffs are being imposed on some consumer goods – clothes and shoes for example.  A lot of shoes are made in China.  Some large department stores like Nordstrom and J.C. Penney (already in trouble) are reporting lower sales.  Dress Barn is closing all 650 of its stores and Payless will close all 2,600 of its stores in July.  And they are just two examples of what is happening in retail.

So just for a moment think about what this means for the economy.  By the end of July 3,250 stores in just two chains will be gone.  What it means is jobs, jobs, jobs that are going to be gone in a flash.  How many employees work at those two chains?  Service jobs, like much of retail, provide jobs for entry-level and low-wage workers – a great many of whom are women.

The economy is booming.  New job creation is strong.  But if a low-wage service industry employee is out of a job for a month or two while looking for a new job, before they find one there will probably be some things that they normally buy that they now cannot. Do you sell any of those “some things”?  You’d better look and if you do it could negatively impact your sales and earnings.  You might want to start to think about how you are going to deal with it if it happens.  There is a lot happening in the economy and probably sooner rather than later the strong economic growth that we have been experiencing is going to start slowing down.  It is becoming more and more important to be vigilant.

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The US economy is rolling along but with it consumer debt is rising, credit card delinquencies are rising, and student loan debt according to Forbes has reached $1.5 trillion on which the delinquency rate is now 11.4%.  That’s $165,000,000 that is not going to be spent into the economy.  An unpaid student loan debt totally precludes a small business owner from any conventional financing including SBA loans because it shows on your credit report.  Rising consumer and student loan debt is beginning to cause banks to raise interest on some loans as well as credit cards.  Credit card delinquency rates in the first quarter hit the highest level since 2012.  This and rising student loan debt is especially prevalent among the Millennials.  Being saddled with high student loan debt is causing some younger people to have to postpone buying decisions – such as a house, with all the related spending that goes with it. 

Does all this mean anything for your business?  It may mean nothing depending on your product or service.  But if you have to buy from a supplier or manufacturer, does anything in that product come from China?  For just one example, depending on whatever happens in the tariff/trade war with China, your supplier’s costs may go up which they will pass along to you which you will probably have to pass on to your customers.  Will that make some of your customers decide not to buy at the higher price?  On the flip side, you may have a good product that was cheaper than the product that consumers were willing to buy before, but if the price on that product goes too high, the consumers may opt for a less costly version of the same product – yours perhaps.

Whatever happens it’s becoming more and more of a good time to look backward at your supply chain and forward to the types of customers purchasing your product to see how interest rate-sensitive they might be, what their ages are and anything else.  It’s prevailing wisdom to know your customer.  It may be a good time to take a closer look both ways.

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If you decide to sell your business what is a potential buyer going to look at first when your business goes up for sale?  Most probably it is going to be “How much money can I make from this business?”  Otherwise why buy it unless they are looking for an expensive hobby. How much cash flow your business generates that will be available to the new owner will also be a major driver of the value of your business, so you must make sure that you don’t leave anything out to your detriment, and be able to document it.

Determining owner’s cash flow is not that difficult if you know your P&L’s inside out.  There are the obvious things like profits – the sales minus the expenses.  But it is in those expenses that many of the important items reside that can be added back to the cash available to a new owner.  There may be interest expenses that you are paying now that the new owner will not have.  Add them back.  Your salary is in there.  Add it back.  There could be depreciation and amortization which, while they are an expense to the business do not require you to write a check.  Add it back. 

A little less obvious are possible perks that you have given yourself as owner.  Things such as a company car; insurance premiums that the company may pay on your behalf; if you have done any business travel are there any personal expenses in there?  Add them back.  Finally if there were any non-recurring expenses during the year – something that happened that was not part of the business day-to-day operations that had to be paid for.  Add it back.  And finally, if your business includes real estate on which you have a mortgage, the interest expense will not be there for the new owner so add it back.  This total cash that the business throws off is going to be one of the most important numbers used in some business valuation formulas.  But it will also be the critical number for a lender if the new buyer is looking for a loan.  It tells the banker how much cash is available to service the debt which is the most critical thing that a lender wants to see first.

So make sure you get everything.  What you might miss might be money left on the table in the final offer that a buyer might make.

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Venture capital is just the beginning – the easy part although most founders who have successfully raised venture capital would probably laugh at that.  Once the capital is raised to start growing the company a founder might think he or she is off and running with bigger and better things ahead, which hopefully they are.  But eventually, if the business succeeds and continues to grow reality begins to set in and the founder has to start managing a real business with all its pieces and parts taking attention away from what the founder really wants to do.  

Most founders are really good at what they started.  They love it and have a passion for it and are determined to make it succeed.  But a business is like a football team.  Success requires blocking and tackling – the stuff that hurts and isn’t fun, and without it the team is unlikely to succeed.  Staying on top of cash flows, keeping track of costs, keeping accurate and current financial statements, hiring, and firing and on and on – these are the blocking and tackling that makes a business successful.  Sometimes the owner needs help and doesn’t know where to find it.

It can often be found at SCORE – one of the resource partners of SBA.  The over 11,000 SCORE mentors around the country are mostly retired business people and business owners who provide expert, confidential advice to small business owners – both startup and existing, at no cost.  In 2017 SCORE helped create over 50,000 new businesses and provided thousands of hours of free mentoring to both startup and existing small businesses.  In the Richmond, Virginia chapter alone SCORE mentors provided over 2,200 hours of mentoring services.  Over half of SCORE’s clients are women and nearly 40% minorities.  SCORE is worth knowing about if you miss that block or tackle.  Or before.

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