{"id":2542,"date":"2013-12-13T14:41:51","date_gmt":"2013-12-13T19:41:51","guid":{"rendered":"http:\/\/www.americanbusinessmag.com\/?p=2542"},"modified":"2016-10-11T11:29:20","modified_gmt":"2016-10-11T16:29:20","slug":"america-is-on-the-upswing","status":"publish","type":"post","link":"https:\/\/www.americanbusinessmag.com\/2013\/12\/america-is-on-the-upswing\/","title":{"rendered":"America is on the Upswing"},"content":{"rendered":"As we enter the fourth month of 2013, we\u2019ve already seen many changes in what we believed to be true late in 2012.<\/p>\nEurope has fallen deeper into recession, as they\u2019ve experienced three consecutive quarters of negative economic growth. Europe tried an austerity program to get themselves out of the recession. Though austerity may reduce debt, in the short-term, it fails to move the economy forward. Instead of ushering in prosperity, attempts to slash deficits and debt have actually caused more debt by depressing economic growth.<\/p>\nAs Europe continues to struggle with its third consecutive quarter in decline in gross domestic product, America can\u2019t escape the impact. General Motors, for example, is selling less cars across the pond and other companies are having difficulty shipping goods overseas due to reduced demand in Europe.<\/p>\nHowever, the overall atmosphere in America has changed precipitously. We only have to look as far as the stock market, which has recently hit an all-time high, surpassing its previous peek reached in 2007. We only have to look at the car manufacturers to see that even though they\u2019re having more difficulty selling in Europe, and various other places across the globe, total sales are the highest in five years.<\/p>\nAlso, there\u2019s no doubt that the real estate market is improving. It\u2019s certainly improving from very low numbers, but still there is no doubt it\u2019s improving. I read with interest that foreclosures were at a four-year low during the first two weeks of February 2013.<\/p>\nThe American economy is on the upswing. However, we have to get to the point, and what we have to understand is that we have to vastly improve\u2014to move our economy forward, to move the middle class forward, to assist the working poor, to assist small businesses in America and to finally get to the point where the American worker catches up with the American corporations. The only way we can accomplish that is through more and more activity throughout the entire economy.<\/p>\nSo how do we do that? The first thing we have to do is change our mindset. Although, our mindset has increased dramatically since the Great Recession, our confidence level in both our leaders and our economy is still relatively modest.<\/p>\nWe are traversing the moral high ground when we convince any of the powers at be that in order to protect American business, we need to protect all Americans. And now is the time to take action for entrepreneurs to protect their companies, their legacies, their families, their employees, their vendors, their bankers, their insurance agents and that whole environment of people who they are obligated to protect.<\/p>\nWe have gone the last four years without taking risk, believing that all we can do is just get by. We have driven ourselves to the point of believing that the very best we can do is 50-percent less than what we could do four years ago. We must stop that.<\/p>\nAmerica\u2019s small business owners must manage every critical variable within their businesses. What are those critical variables? Certainly, they have to figure out how they produce profitable sales, but contemporaneously maximize a profitable sale. They need to get back to marketing. They need to get back to figuring out how they can maximize the revenue in their company, taking into consideration that maximizing revenue that is not profitable makes absolutely no rational or reasonable sense.<\/p>\nThe next thing they have to do is control the critical variables of their cost\u2014those costs being the cost of goods sold first, which is made up of their labor, their material, their subcontractors and any other expense directly related to the production of their product.<\/p>\nSo how do they go about doing that? How do they go about controlling the next cost, which is their overhead? Their overhead is defined as all other costs associated with the business, other than the cost of goods sold and profit. How do they control their overhead? The first thing they have to do is know what their overhead is. When you ask the owner of a small business what his overhead is, he guesses and throws out a number. \u201cOh, it\u2019s around 30 percent.\u201d That number is absolutely absurd. A small business owner has to understand that the difference between his gross margin minus his overhead equals his net profit before tax. If his overhead is five percentage points higher than what he thinks, that means the very best he can achieve\u2014if 10 percent would be the maximum profit his business could throw off\u2014would be five percent. Therefore, 50 percent of his potential would be immediately eliminated by the fact that his overhead is five percent higher than what he thought.<\/p>\nWhen it comes to labor costs, if a business owner\u2019s productivity is only 60 percent, versus a minimum of what it should be of 80 percent, and assuming he\u2019s operating a $2 million-a-year company with a 30-percent labor burden, that means he\u2019s spending $600,000 a year on labor. If he could increase his productivity by 20 percent, that would be $120,000 savings on just productivity\u2014 on just that 20 percent increase. That $120,000 in savings is, in most instances, a sum greater than what he actually takes out of the business in compensation.<\/p>\nWhat about material costs? Is he really minimizing his material costs? Is he really making sure that he\u2019s buying from the right source, buying at the right price, receiving everything he actually thought he was buying, making sure he reduces his pilferage, his waste and his theft? Is he really making sure that the product that he\u2019s buying is of the quality that it needs to be to turn around and sell it?<\/p>\nIs he making sure that he\u2019s not getting too many rejections? In other words, if he happens to be a job shop operator, is the brass he\u2019s buying causing too many rejects? Or the plastic he buys? Or the resin he buys? Is he making absolutely sure that what he\u2019s buying is what he should be buying?<\/p>\nAs a contractor, is he making sure that he\u2019s actually managing each component? Is he making sure his bid-to-award ratio is what it should be? Is he making sure the jobs that he\u2019s getting are the jobs he should be getting and the jobs he\u2019s rejecting are the jobs he should be rejecting? Can he reduce his costs to reduce his price by three percent so he can get the job and still make his 10-percent profit? Is there some methodology that could have been employed to ensure that the job costing and estimating are correct? In other words, must he have a check and balance system to make sure it\u2019s working the way it should work?<\/p>\nRealistically, does he have a methodology to determine his working capital, determine where his accounts payables should be, and determine where his accounts receivables are? Does he really know about a cash flow analysis? Does he really know about progress billings? Does he really know how to make sure that his working capital and his cash flow is what it should be? Does he have some reasonable understanding of how he spends his depreciation money\u2014depreciation being money that is deducted from his federal income tax liability, but not actually spent? Does he know how he should be investing those depreciation dollars, which\u2014on a $2 million-dollar company\u2014might be $60,000 $70,000 or $80,000 per year? Is he investing that money back in the company or is he taking it for himself? Again, $80,000 per year might double his income.<\/p>\nIs he really trying to double his income? No. What he\u2019s trying to do is build a legacy for himself. What he\u2019s trying to do is get to the point where he as the entrepreneur\u2014as the owner of his company\u2014is capable of controlling his own destiny. What he really needs to do is build this monument. The problem is no one can build a monument that can last 300-400 years unless they use the right materials.<\/p>\nIf you look at the Washington Monument, Abraham Lincoln\u2019s statute in Washington or the Coliseum in Rome, you\u2019ll realize how painstakingly brilliant the workmanship was and the materials used. But, if in fact they used inferior materials, there\u2019s no way the Coliseum shell would still stand 2,000 years later.<\/p>\nThe reality is each and every one of us has an obligation to do as well as we can in order to make sure that everyone around us benefits. It\u2019s absolutely astonishing that the middle class in America is trying to live with 10-percent less buying power than what they did 10 years ago. In order to modify that, small businesses have to get back into play. They have to start hiring again, they have to cut their costs, increase their productivity, drive their revenue higher and begin to hire again. And they need to hire at wages that are rational and reasonable.<\/p>\nThe argument we\u2019re currently having about raising the minimum wage could be a horrible decision for companies like Pizza Hut that deliver products that are relatively low-priced to begin with. However, in the aggregate, no one in America can live on $8.25 an hour, $9.25 an hour or $10 an hour. You cannot live on those sums. What you need to do is create jobs where people can make reasonable incomes\u2014$50,000, $60,000, $100,000 a year.<\/p>\nHow do we get back to that? We get back to that by making small businesses in America prosper. And how do small businesses in America prosper? By following the rules, the rules of smart entrepreneurship: Control every one of the critical variables by knowing what the critical variables are and knowing what the actual factors are that make up each individual critical variable. Then, and only then, can a small business owner run their business the right way\u2014run their business for maximum profit so they can decide how to reinvest those dollars back into America. That should be the goal of every entrepreneur.<\/p>\n","protected":false},"excerpt":{"rendered":"<div class=\"mh-excerpt\">As we enter the fourth month of 2013, we\u2019ve already seen many changes in what we believed to be true late in 2012. Europe has fallen deeper into recession, as they\u2019ve experienced three consecutive quarters <a class=\"mh-excerpt-more\" href=\"https:\/\/www.americanbusinessmag.com\/2013\/12\/america-is-on-the-upswing\/\" title=\"America is on the Upswing\">[&#8230;]<\/a><\/p>\n<\/div>","protected":false},"author":266,"featured_media":2544,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[31],"tags":[],"class_list":{"0":"post-2542","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy"},"_links":{"self":[{"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/posts\/2542","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/users\/266"}],"replies":[{"embeddable":true,"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/comments?post=2542"}],"version-history":[{"count":3,"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/posts\/2542\/revisions"}],"predecessor-version":[{"id":3429,"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/posts\/2542\/revisions\/3429"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/media\/2544"}],"wp:attachment":[{"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/media?parent=2542"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/categories?post=2542"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.americanbusinessmag.com\/wp-json\/wp\/v2\/tags?post=2542"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}