My column in this week’s Tennessean offers some tips on how small businesses can best prepare for the possible tough economic times ahead. This will be a new experience for most entrepreneurs in America thanks to the long economic expansion we have enjoyed for most of the past twenty years.
Unlike the last period of stagflation in the late 1970s, we are now in an entrepreneurial economy — 50 cents of every dollar in the economy is generated by small businesses.
Small businesses are always tight on cash flow. And if their inputs of raw materials and other direct operating expenses go up, they may not be able to pass along these costs quickly enough to keep their cash flow positive. And they certainly don’t have large cash reserves to ride out the recession that is part of stagflation.
I would be interested in hearing what should be done in the halls of government also. It looks like sales taxes are coming in over last years nominal amounts but below the inflation rate. Governments must buy services at the current prices too even though they have the luxury of declaring themselves exempt from the sales taxes and the property taxes that everyone else must pay. The weakness in the property values is also going to mean less income for many county and city governments. I am particularly concerned about the cost of labor in the government. In Tennessee, the stability of the employee retirement fund is based upon the average salary rising 4.75% per year. Real people do not often get such an increase. Finally, the baby boom generation will be living off on income that is not on a par with their old working income. This is going to suggest that county governments and city governments should have some kind of plan.(besides raising taxes) According to BEA records, GDP is going up faster than household income and has been since the seventies. Transportation costs have to rise but the ability to fit all demands under a fattening average household income is going to be difficult. The average age of automobiles is getting longer, nearly 10 years now and the size of a family is still a way that some may stretch income, but how does the government make more available with less. According to my calculations, the number of government employees will exceed the number of industrial employees in Tennessee by this time next year.