The U.S. Federal Reserve reduced borrowing rates by one-quarter percent today as policy makers continue to focus on economic growth rather than inflation. The Fed’s decision comes on the heals of several pieces of mixed economic data. Preliminary Gross Domestic Product (GDP) numbers indicate the U.S. economy grew at a rate of 3.9 percent in the third quarter. Job growth has slowed from 2006, but the economy is still adding jobs. Consumer confidence is trending down, manufacturing growth has slowed, and the housing market is in the tank. All of this economic data paints a portrait of uncertainty.

As we have said before, the best thing a business owner can do is prepare for a slowdown, but keep pressing forward with long term growth plans! Savvy business owners can have profitable and growing businesses in good times and in bad.

The preliminary Gross Domestic Product (GDP) numbers just released came in above economist expectations for the third quarter. Consensus expectations were for GDP growth in the 3.2 percent range, preliminary estimates show GDP growth in the 3.9 percent range for the recently finished quarter. Despite a significant slowdown in private residential and non-residential structures growth stayed strong in the third quarter. The GDP numbers will have a significant influence on the U.S. Federal Reserve’s interest rate decision due to come later today. The real issue for the U.S. Federal Reserve is the series of mixed economic data they have received. GDP in the third quarter was strong, and employment growth may be stabilizing. However, consumers are weary and the housing market is plummeting.

The ADP Employment report released today shows that job growth strengthened in October, despite signs that the economy is feeling the effects of the downturn in housing and the credit crunch. A strengthening job market would be good news for the economy. According to the U.S. Department of Labor, the U.S. economy has created about 40 percent fewer jobs in 2007 than it did in 2006. A reversal of this trend would be great news for consumer spending.

Discover’s small business confidence index fell in October, apparently small business owners are concerned about the economy. Sometimes I believe the difference between Wall Street and Main Street is that we on Main have real businesses to run. We are worried about finding new customers and growing our business. When economic conditions begin to look suspect we face reality and figure out what we must do to keep our businesses moving forward. There is no spin to keep the stock price up, and there is no false optimism to reassure investors. At the end of the day it is what it is. Your best bet is to have the confidence to lead your business to success, regardless of the challenging environment,

Oil prices keep going up, home prices keep going down, credit is harder to get, and the weather is turning cold. It is no wonder consumers are in a bad mood, the only surprise is that their mood is not worse. The Conference Board reported today that consumer confidence fell steeply in October. Consumers have been less rosy about the economy six of the past seven months, and consumer confidence is how hovering near two year lows (remember Hurricane Katrina). Concerns about the housing market, higher energy prices, and a slower economy have the consumer less enthusiastic about their prospects in the coming months. This is just one more piece of data for the U.S. Federal Reserve to mull over before they announce their decision in regards to interest rates on Wednesday.

I am not in the Forbes 400 so I cannot take Warren Buffet up on his offer to prove I committ a lower percentage of my income for taxes than my secretary, come to think of it I don’t have a secretary. In an interview with NBC’s Tom Brokaw Warren Buffett discusses the unfairness of our current tax code and how the rich do not pay their fare share. I am sure this will get a great deal of attention as new tax proposals are being floated in Washington and the tax cuts from 2001 are set to expire.

I cannot give you Wall Street’s view on taxes I can only provide a view from Main Street. As a small business owner our tax system is not designed to reinforce entrepreneurship or risk taking. Currently the federal tax rate for an individual in the highest bracket is the same as the tax rate for a corporation. What many don’t know is that several years ago this was not the case. A new type of corporation was created called the S-Corp. This allowed the entrepreneur to start a new business and any income from that business flowed through directly to him or her. The advantage was that an individual could avoid higher corporate income rates, and any dividend taxes on cash disbursements from their business.

Proposals currently in Congress call for cutting the corporate rate to 30 percent and taxing any couple making more than $200,000 per year an additional 4 percent surcharge. Under this proposal if you own a small business that generates $1,000,000 per year in revenues, and with salary and profits from the business you make more than $200,000 per year, your tax rate will be higher than Wal Mart, Exxon, and any other multi-billion dollar Fortune 500 company. You will also be paying the same marginal rate as someone making $200,000,000 per year. That does not seem to make much sense to me.

Our tax code seems to ignore the small family farm and the entrepreneurship class. If we are going to have a progressive tax system where lower incomes have a lower tax rate, then why stop at $200,000 per year? Why would a billion dollar per year corporation have a lower rate than a small family business? Why would a billionaire investor have the same tax rate as an entrepreneur trying to get his or her business started?

It seems to me that the last thing we want to do in this country is stifle entrepreneurship and innovation. More than half of the private sector workforce works in small business in the United States. More than half of our Gross Domestic Product comes from small business. More than 70 percent of new jobs created come from small companies. I guess I don’t grasp the logic of throwing water on the entrepreneurial spark that ignites our economy!     

I ran across this article in Fast Company on habits of bad managers. Some of these habits hit the nail precisely on the head. There are many causes of bad managers. Some are promoted too early and are not ready for the job. Some are promoted too late and have become bitter about a company they believe did not recognize them. All of them have one thing in common. They don’t get results. They don’t have the ability to motivate teams to get to the next level.

I agree with all the habits this author describes except for one. She indicates that incompetent managers work long hours. I think she missed this one. In my experience people that put in the time usually do so because of a high-level of commitment to get the job done. I have heard the “long hours” theory many times, it is usually given to me by someone who does not want to get up early and stay until the job is done. It strikes me that the one thing highly successful people never do is work 40 hours per week. They press themselves to get everything done today that they can, because they understand they cannot predict what will happen tomorrow.

Shai Agassi, A Silicon Valley entrepreneur, is a great example of getting the word out about a business. I ran across two articles on Shai’s unnamed business, one in the Wall Street Journal, and one in the New York Times. He has raised $200 million for his effort to develop a battery-powered, all electric car. At Harvard we use to call this “other people’s money.”

Publicity is the name of the game for any business. Whether you are generating that publicity through public relations, promotions, word-of-mouth, or advertising. It is up to you to get the word out about your business. Too many business owners open their doors and expect the world to come calling. If you want the world at your doorstep, you must let them know you are there!

Every small business owner know the secret to entrepreneurship is being able to manage and generate cash. The best are able to do this in any economic environment. These secrets are really all about the basics in any business. If you do the blocking and tackling, you will successfully navigate any rough air you encounter. If you want to manage the tough environments start with these basics:

• Receivables – Stay on top of your AR (accounts receivable). Make sure your customers are paying on time and talk to the ones who are not. Don’t let others use your money to finance their business.
• Inventory – Keep inventory under control. The last thing you need is a pile of cash sitting in inventory. This is all about keeping your overall business cycle short.
• Discretionary Expense – If you are feeling the heat of a difficult economy start trimming discretionary expenses. In most businesses there are always expenses that are wanted but not needed. Be diligent during a slowdown.
• Capital – To conserve cash get stingy about capital investment. Force your teams to perform their due diligence before using cash for capital investment.
• Efficiency – A more efficient workforce will drive earnings and cash. Find out what you need to measure to ensure your workforce is operating efficiently, and then drive maximum utilization.

There are many ways to build cash in a business. These are some simple reminders that you can focus on which will help you build cash in your business all the time.

The New York Times business section has an article today about the upcoming U.S. Federal Reserve meeting and whether or not they should cut interest rates. The article points out that some are saying, except for the problems in housing and credit, the U.S. economy is in relatively good shape. They cite many of the numbers that are in our rear-view mirror, Gross Domestic Product, consumer spending, business investment, and job growth. I would provide a word of caution, if you spend too much time looking back, you cannot avoid obstacles in your path!

It strikes me that it would be risky to assume that the continued free fall in the housing market and home prices will have little or no impact on the economy. The reality is our economy is interconnected. If there is a major issue in one segment of the economy, it can easily spill over into other areas. This is already showing up in slower growth rates in many of the positives the economic bulls stress. At the end of the day the macro-economy is going to do what it is going to do, our job is to position our businesses to take advantage of the rough air just ahead.