The last three years have been extremely difficult for small businesses.  In 2009 alone, there were nearly two hundred thousand small business closures than business openings.   

The good news is that the economy will not be getting worse.  The bad news is that we are in a stagnate economy.  The growth projections for the next four quarters will not be more than 2.0%.   We need at least 4% quarterly growth to get us out of our economic funk.    With the economic uncertainty going into the election year and no real boom industry on the horizon, 4% will be difficult to achieve.   The US government continues to pile on new regulations, 40,000 pages worth just went into effect on the first of January.  The most significant will be the IRS 1099 reporting requirement.  Obamacare still creates uncertainty and is driving up healthcare costs.  The Bush tax cuts expire at the end of this year.  The Bush Tax cuts will be used for much political theater, with the Democrats opposing the continuation and the Republicans wanting to make them permanent.  There won’t be clarity on this issue until after the election.  The markets will react volatilely until this issue is resolved.

The economy needs a more pro-growth, pro small business governmental policies to see real growth.   So far, small businesses have only received platitudes and false promises.  Currently, a small business with less than 20 employees spends over ten thousand dollars a year just complying with government regulations. 

The Obama Administration promised $30 Billion in small business loans.  Most of that money went to the big banks, which used to money to pay back TARP and other obligations.  As a recent Pepperdine University report indicated, 60% of all small business loan applications were declined in 2010.  We don’t see any reason why this trend won’t continue.  The banks are still knee deep in trying to extricate themselves from the housing debacle and the feds have a tighter control on their activities through the Dodd Frank Wall Street Reform Act. 

We should expect another rocky ride on Wall Street.  The Dow finished up in 2011.   But the markets will remain volatile.   There will certainly be political pressure to keep the Dow above 12,000.  We could see it reach 13,000 by the end of the year.  This is almost a certainty if the elections go Republican.   There are several factors to this reasoning, but mainly the Republicans are pro growth and they will certainly extend the Bush tax cuts, and perhaps make them permanent. 

Internationally, we could hear the death knell sound for the Euro.  This would send most markets in a tizzy.  It’s not great for exports.  This will also mean a devaluing of the Euro against the dollar.  More money should pour into our stock markets from scared foreign investors looking for a safe haven.  In the short term, this will provide a boost to our economy and lending may increase a bit.  The long term trend is very negative because most Europeans will be offered a devalued currency.   

What does all this mean to small business?

You are still going to be in a holding pattern.  You may experience no growth to modest growth this year.  This is not a year to expand or make huge capital investments.  It is a time to take inventory and really scrutinize your processes, your policies and your procedures.  You also want to take the time to build better relationships with your regular customers.   Any growth this year will come organically.    You should explore all financial alternatives in case an emergency arises.  Many small businesses have learned the hard way that their banks are less than reliable.  We saw in 2008 and 2009 how the banks slashed and canceled small businesses lines of credit.  Fortunately, private lenders have come into the market to pick up the slack.  The interest or more appropriately, the factor rates, have dropped dramatically. 

The US Government did lower the debit interchange rate by 95%.   Since most retail and restaurants process more than 50% of their transactions through debit, the debit interchange reduction is a real savings.  (You will need to contact your processor or switch processors to realize these savings.)

Are you carrying too much inventory?  A key investment this year may be a POS system, if you do not already have one, and begin to catalog your inventory.  On average most retail businesses carry too many months’ worth of inventory.  You can free up some cash if you can make better purchasing decisions.  That really should be your focus this year.   You really want to maximize your cash position.   There are many systems on the market that can help you plan, organize and purchase better.  This will be a better use of your time than chasing the next haired brain scheme to increase business.

Take advantage of Groupon marketing.  Groupon and Living Social are the two main discount coupon sites on the market.  If you use them right, you can transform and increase your customer base.   Most Grouponees are looking for bargains, but they are also looking for new experiences.    Welcome them in.  

As far as the economy, the worst parts are behind us.  If your business has survived this long, you should make it through.   Unfortunately, a lot rides on this next election.  There is too much government intervention these days for government policies not to have a dramatic effect on the economy.  A pro small business administration could easily turn this economy around by lowering the corporate tax rate, repealing Dodd Frank, and repealing Obamacare, reigning in the EPA, allowing for more energy exploration and drilling.   But if we stay with the status quo, I only predict the stagnation to continue.