Banking on banks could be hazardous to your health. A recent article in The Economist [1] reports new data indicating that small businesses are a drag on the employment rebound from the recession. Large firms have resumed hiring but small firms continue to shed jobs.
The culprit? According to The Economist, one of the biggest causes is tight credit. With banks still skittish about bad debts, only the most credit-worthy companies can qualify for new loans to expand their businesses – and hire more employees.
While lack of credit is a likely cause, subdued confidence in the future is also at work here. Entrepreneurs and other business owners are almost by definition optimists – who else would take the risks? But investing for the future also requires confidence in a stable business and economic environment. Such confidence has been in short supply.
Continuing upheaval in global financial markets, impending increases in government healthcare mandates, business regulation, and tax rates do little to inspire confidence that investments made today will result in reasonable prospects of returns on those investments in the future.
In this environment business owners must:
- Carefully evaluate current and future market opportunities
- Develop business plans based on conservative financial assumptions
- Establish and guard rainy day funds and backup lines of
credit as if there business lives depended on them (which they might)
[1] May 15, 2010, p. 38
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