The financial planner, in this day and age, is often seen as something akin to the proverbial fox in the hen house- and may be treated likewise. The economic outlook is grim, and this doesn’t inspire confidence in clients; open any paper and dire predictions are handed out like candy at a pre-school playground. The catch-22 is that, while talking about one’s financial future is something many clients would rather avoid, now is the exact time solid financial advice is needed. This is particularly true for Baby Boomers. Here is the bad news:

• Baby Boomers, in general, don’t save the way their parents did, or the way they should. One-fourth of Baby Boomer households have so far failed to accumulate significant savings, and will most likely have to rely on government benefits to retire.
• There are currently 79 million Baby Boomers in the United States. According to the U.S. Census Bureau, only 20 % of them have a clear plan for their retirement.
• The aging of an enormous generation is combined with the lengthening of the average life span. Many Americans, therefore, expect to work longer, more often than not until death.

What is the financial planner to do in this type of climate? The task of re-creating trust, exuding confidence, providing realistic advice and even results, seems daunting; it is no wonder that many advisors are feeling the pressure. In addition, as Newsweek’s columnist Anna Quindlen pointed out in her recent article Dollars and Sense: “Many Americans don’t understand the basics of the economy”(Newsweek, 3-30-2009, p. 62). If that statement rings true for your clients, you have to address some serious issues. Don’t worry, you are not alone, and there is a solution.

Identifying your problems is essential; they may include some or all of the below:

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The American Recovery and Reinvestment Act of 2009 …
… Is the official name of what is known among the general population as Obama’s Stimulus Package, occasionally called “The Stim” by various news talking heads - the ones who are clever, that is.  An Obama Small Business plan does not appear to be in the works, but even critics acknowledge that the Obama Stimulus Plan contains a number of “good news” elements for small business owners, especially in certain sectors.  The entire package totals $787 billion, and this amount is arrived at by combining the value of tax cuts, direct cash infusions, and loan guarantees over and above those that already exist.

Barack Obama’s Stimulus Package - Obama For Small Business
In numerous stump speeches during the 2008 election process, Barack Obama consistently came out in favor of locally owned businesses.  That concern has carried over to his presidency.  Here are some elements of the Obama Stimulus that directly benefit small businesses:

• Larger loan guarantees - The U.S.

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Michael Jackson - Icon
Beginning with his recent death at age 50, there has been enough Michael Jackson news out there to satisfy even the hardest core fan.  Without question he enjoyed an iconic presence in the world of popular music, stretching back to at least the 1980s.  More than one music expert has declared him to be Michael Jackson, King of Pop.  The album, “Thriller,” has sold more copies than nearly any other recording, and there can be no argument that the concept of the music video - ushering in what became MTV culture - was the perfect medium to show off all of Jackson’s talents.  But few people realize that he was as much an entrepreneur as he was an entertainer.

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Shaky Financial Times
Some news pundits have described our current dire economic circumstances - not literally, perhaps, but in similar tone - as if the Great Depression of the 1930s was paired with Europe’s suffering at the hands of the bubonic plague, plus an invasion of the Mongol Horde thrown in for good measure.  While few of us are riding high these days, nothing is ever as bleak the Wall Street Journal, Financial Times, or U.S. News & World Report makes it out to be.  Despite the seemingly never-ending stories of job layoffs, personal bankruptcies and home foreclosures, these can be exceptionally rewarding times for small business owners.

Darwin Was Right - About One Thing, Anyway
Although the theory Charles Darwin put forth regarding the extinction of species - he claimed it happened slowly over millennia - has been pretty much debunked by scientists identifying at least five Great Extinctions, each taking place quite suddenly, the scholarly evolutionist was correct about the survival of the fittest, at least as it concerns business.  In difficult financial times, money is tight at the consumer level.  People are especially tight-fisted when it comes to deciding where to spend their cash.  A company that trims unnecessary spending, provides superior customer service, refuses to cut back on product quality, and finds more efficient ways to operate, will stand to capture a solid share of the market.  Establishments that give off the stench of despair, alienate their employees, or continue to spend too much money on non-essentials, will probably fail to survive.  Make smart decisions and you will avoid becoming the modern-day equivalent of the dodo bird or the passenger pigeon.

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Saving the Economy

One of the toughest domestic tasks to face the Obama Administration during its first 100 days involved getting the U.S. economy back on track.  The federal stimulus package has a number of prime elements to it, each one a broad overview designed to repair what many people consider to be damaged fiscal policy.  These factors include:

• Create New Jobs
• Move toward a greener (more environmentally responsible) economy
• Improve the country’s infrastructure
• Improve all levels of education
• Offer greater assistance to the unemployed
• Provide tax relief for 95 percent of Americans
   

Frozen Assets

Major corporations, notably those in the financial and automotive sectors, have received billions of dollars of taxpayer money in the form of loans and outright gifts.  The credit crunch that resulted from the collapse of a number of banks has had a devastating effect on the ability of American small business to conduct, well, business.  These companies rely on short- and medium-term financing to do everything from providing payroll relief to offering bridge loans for ongoing operations to funding new construction or remodeling.  Because so many banks are loaded down with “toxic assets”—loans that are unlikely to ever get paid back—they have no way to free up capital to provide new loans to the companies that need them.

Proposing a Small-Business “Bailout”

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We will state the obvious for the year with a twist…not since the last major downturn in the early ‘80s have firms in the PC, CE industry had such an opportunity to:

• slash costs, downsize the workforce,  shrink to core (known) market opportunities
• evaluate product/product segment/customer ROI/opportunities; realign product/service investments based on long-range strategic plans

Do you see the differences?

Management in the first group of firms who focus on cut and retrench will circle the wagons to force short term results regardless of the long-range potential of the market segments.

Management in the second group will take the opportunity to reduce staffing back to core teams, evaluate and eliminate product lines and customers which have little or no long-term growth and strategically invest in product/service innovations that should prepare the companies for 2010 – 2012.

Industry executives are most certainly jealous of the support governments are providing to their local financial and auto industries.  The problem is it is impossible for them to admit that they have run out of ideas that will correct the situation!

The first quarter of 09 will be a period of slow, careful realignment as firms see how quickly the governmental cash infusions rekindle IT and consumer confidence.

The downturn in the first half of last quarter had a positive effect for the consumer because it forced management to significantly lower prices (and profit margins) to stimulate sales.  This assisted desktop/notebook computer, personal/home entertainment sales and…impacted profits. 

             
Reshaped, Refocused

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The financial industry got caught with its pants down.   The automotive industry got caught with its arrogance up.

The PC, CE, communications industry simply got caught between the two.

We feel the angst but the business is still fundamentally sound.  With the right course adjustments the industry will be in a better position to deliver solutions and satisfaction to global business and local consumers.

We aren’t polyannic about the state of the economy…or the industry. 

We don’t quite believe as President Reagan did in the mid ‘80’s that things are good and they’re getting better.

But fundamentally, the content industry did not have the sudden stop the financial and auto industries did starting six months ago. 

We’ve been in this industry for 20 plus (ok + +) years and we’ve been through the downturns.  But the industry always comes out the other side better, stronger, more aggressive.

Silicon Valley is both a specific location and a state of mind. 

The winners are not those who focus their attention on making millions for themselves (if they’re really lucky that’s a nice side effect). 

They aren’t those who cling to the rustbelt past.

They are the individuals who drive change - often very disruptive change – for the people who live on this orb and the planet itself!

At the recent 6Sight conference dinner our conversation naturally turned to the economy and one young lady noted her company had recently been acquired and that she wasn’t certain about her job but she noted…“that’s the way the Valley is.”

           
That Hurts

We’ve all seen our 401K shrink like a bad case of hemorrhoids. 

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If you’ve been paying any sort of attention to the news this week, you’ll probably be aware that the Chancellor released his pre-budget report on Monday. This report is likely to have a major impact on your business, whether or not you are VAT registered. 

I’ve outlined the main points below:

VAT From Monday 1st December, the VAT rate will go from 17.5% to 15% for at least a year. If you are VAT registered, you will need to use the new rate as of this date. HMRC have issued detailed guidance on this.

The new calculation for working out VAT is now 3/23.

CORPORATION TAX The Government is deferring for a year the planned increase to the small companies rate of corporation tax. The rate will remain at 21% for 2009-10.

EXTRA LENDING UK small businesses should also be able to benefit from around £4bn of lending from the European Investment Bank (EIB) between 2008 and 2011. Approximately £1bn of these funds should be available by the end of 2008. The Government will launch a new Small Business Finance Scheme to support up to £1bn of bank lending, together with another guarantee facility for up to £1bn of bank support to small exporters. It will also make available a £50m fund to convert businesses’ debt into equity.

TAX PAYMENTS Businesses in financial difficulty will be able to spread payment of their tax bills over an indefinite time period. A new Business Payment Support service has been launched to help businesses calculate over what period they need to spread their corporation tax, VAT, PAYE, income tax and national insurance contributions in order to remain profitable.

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