Smalls think big and bigs think “lower”

Taken together with the figures that have had the Australian Central Bank itching for more rate rises to jump all over inflationary pressures and business over confidence, smart companies will begin building their customer relationships management plans to encourage forward orders and begin making appointments for business-to-business value paths and marketing communications efforts.

Now is the time for smalls to think big as the big end of town invests in a change of government as a measure of effective tax management.

As we head towards the electoral cycle and leaders of both major parties race to the bottom of the voter’s satisfaction ratings, it is interesting to note that the economy is still feeling the benefit of the Government’s stimulus package, the RBA is exercising a rare dose of caution and the equities market is on a drip feed.

The large corporates have joined the Hanrahan Committee and the Fair Work bench has determined that SMEs can afford to make payback increases to the bottom end of the workforce. At the same time the Australian dollar has lost its status as a hedge investment as the US dollar regains a measure of market respect.

The recovery in US business confidence suggests that we are finally getting out of the gloom and doom of the past year, even though the unemployment rates are yet to show evidence that business is willing to commit to longer-term expansion.

The National Federation of Independent Business (NFIB) has just released the US Small Business Economic Trends Report for May 2010. The report measures small business sentiment on numerous economic and business factors that confront small businesses.

This months report indicates that small business optimism is improving. The NFIB index rose 3.8 points in April. The rise boosted the optimism Index above the 90 level for the first time in 21 months. The NFIB Index has never registered such a protracted reading of negative sentiment in the four decade history of the index.

During April nine of the 10 index components rose, an indication of improving conditions of most business factors. The single exception was employment sentiment, which continued to signal small businesses remain cautious on creating new jobs.

Components of the Optimism Index include: Labor Markets, Capital Spending, Inventory and Sales, Inflation, Profits and Wages and Credit Markets.

Historically, as in Australia, small businesses have been the major driver in job creation following recessions. The poor job creation reading by the index continues to be a significant contra indicator of economic recovery and the markets will await this month’s job numbers before believing the consumers are about to resume spending.

Some of the highlights of the NFIB report include:

• Average employment per firm was negative 0.18 in April. Average employment has fallen each month since July 2008. 11% of survey respondents reported unfilled job openings. During the next quarter 7% plan layoffs and 14% plan to create new jobs.
• Overall, 91% of the owners reported all their credit needs met or they did not need to access credit. Only 4% of the owners reported finance as their top business problem (down 1 point). Pre-1983, as many as 37% cited financing and interest rates as their top problem.
• Respondents reported profits improved by 12 points in April; 14% reported profits higher (up 5 points), and 51% reported profits falling (down 7 points). Of the owners reporting higher earnings, 57% cited stronger sales as the primary cause and 7% each credited lower labor costs, material costs and higher selling prices.
• For those reporting lower earnings compared to the previous three months, 57% cited weaker sales, 4% blamed rising labor costs, 6% higher materials costs, 2% higher insurance costs and 6% blamed lower selling prices.
• 15% of respondents reported raising average selling prices, but 24% reported average price reductions. April is the 17th consecutive month in which more owners reported cutting average selling prices that raising them.

Watch the gold price over the next few weeks for an indication of the extent to which the market really expects that either Tony will be on a promise with a huge campaign funds or Kevin will begin to listen to the calls from his mates to introduce a measure of commercial reality to the big new tax debate and focus on cutting State payroll taxes.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099