What would you do if a major disaster fell upon your business? If you woke up this morning and went to your office or your plant, and discovered it had been destroyed by a fire, a flood, or a tornado would you have a plan for the survival of your business? Recently I wrote about emergency preparedness and provided some resources for preparing your business for an emergency. Today we will discuss creating a disaster recovery plan for your business.

We believe there are three major pieces to creating a disaster recovery plan. They involve preparing your business for a potential disaster, creating a plan to help restart your operations, and knowing how you will deal with the aftermath.

Preparing your business for a potential disaster involves thinking about the probable and the improbable. The idea is to train your employees what could happen and what each of them will do in the event a disaster strikes. Once you have a plan for what people should do and where they should go, you should practice, practice, practice. Drill the process into everyone’s head, you could be saving lives. Some key points in creating the first piece of a disaster recovery plan are:

• Identify potential disasters for your business
• Create a safety and response team
• Create an evacuation procedure and identify who will make sure everyone is out of the facility
• For tornadoes, identify tornado safe areas of your facility
• Put an emergency kit in each of these areas, flashlights, radios, batteries
• Identify and train those who will render first aid before emergency workers arrive
• Designate who the spokesperson for the business will be in the event of a disaster
• Review your insurance coverage before a disaster strikes
• Practice your disaster drills on a regular basis

In the immediate aftermath of a disaster, once the extent of the damage has been determined, there needs to be a process to get the business up and running again. There will be a delicate balance here that involves the emotional well being of your employees and their families, and the financial health of the business. A business owner must be sensitive to both and create a plan that ensures the health of both the employees and the business. Some keys to this stage are:

• Have an understanding of the financial implications of restarting operations
• Create a crisis counseling plan for employees and their families
• Know where your business will go if you cannot occupy the same facility
• Have a plan for getting phones, computers, and production back up and running
• If you are a manufacturing business identify resources that can help you procure inventory quickly
• Have someone designated to talk to customers and suppliers and keep them informed

The final stage of any disaster recovery plan is dealing with the long term aftermath. A major disaster can obviously impact your business operations in the near term. It can also create a source of frustration for the business for many years. You need to have a plan for dealing with the aftermath of a disaster, after the business is up and running. There may be long term implications.

• If there are going to be legal issues, make sure you designate where you will go for legal support
• Depending on the disaster there may be new regulatory issues to deal with, have someone designated to deal with these issues
• Make sure you assess the overall financial impact
• Have a process for reviewing what went right and what went wrong

A good disaster recovery plan involves being prepared, practicing, and knowing how you intend to recover.

Existing home sale rose slightly in November to an annualized pace of 5.0 million homes, versus October’s rate of 4.97 million homes. Average prices fell 3.3 percent, and the November numbers reflected a 20 percent decline from November of 2006. Inventories came down marginally; however, supply still remains high at more than 10 months. Although the data is welcome news, it does not indicate the housing market has hit bottom and is on its way up. New tighter lending standards will likely have a negative impact on home sales, construction, and prices as we head in to 2008.  

Past performance is never an indicator of future results, although it is important to understand trend data, and we should learn from our mistakes. That said we should never rely too heavily on the past when we are trying to get an idea of where we may be headed.

Peter Bernstein discussed this issue in a recent New York Times article as he was trying to frame where he believes we are headed in 2008. Although I have never been a big fan of trying to predict unpredictable events, in the interest of putting myself out there to be skewered I am willing to give it a shot. So here are my expectations for 2008.

• Housing troubles – We expect the turmoil in the housing market will worsen in 2008, as we have not seen all the potential foreclosures come to the surface. We do expect interest rates will improve; however, the high inventory levels will suppress new and existing home sales. It will take some months for bloated inventories to bleed off and housing to resume its expansion mode.
• Slow job creation – The slowdown in the economy in the fourth quarter of this year will likely cause new job growth to stagnant in 2008. In 2007 the economy created more than 30 percent fewer jobs than it did in 2006, which had fewer new jobs than 2005. We do expect this trend to shift; however, we expect that shift is still some time off.
• Consumers grumpy – The slowdown in housing and a tighter job market will cause consumer spending to slow a bit in 2008. Difficult credit conditions and higher energy prices will take more out of the average American’s paycheck. The end result will be a consumer pullback early in the year.
• $120 Oil – I am not sure oil will rise more than 20 percent in 2008; however $120 per barrell is not totally out of the question. The main driver of higher energy prices will be a weaker dollar.
• Lower rates – The weak dollar will be perpetuated by the U.S. Federal Reserve’s need to lower interest rates to stimulate growth. As rates come down so will the value of the dollar, this will help some exports.
• Slow growth – All of the above will add up to slower economic growth in the coming year. Our expectation is for growth to be slowest in the first half of 2008, and pick up as the year goes on, and we work our way out of the slump.

We are suggesting business owners should be somewhat suspicious of an extremely aggressive top-line sales forecast for 2008. Although a slowing economy is not guaranteed, the signs are certainly pointing that direction. If you keep your eye on expenses, and have a contingency plan at the ready you should be able to navigate any rough air in the coming year.  

This week we will close out 2007, and move on to 2008. As we turn our calendars from one year to the next we will have a slew of economic data to digest along with our New Year’s champagne.

Monday we will get existing home sales for November. The expectation is that home sales will continue to be flat as inventories remain bloated. We will see more data for manufacturing on Wednesday with the ISM manufacturing survey, and Thursday with the report on factory orders. We anticipate both of these reports will continue to expose a slight slowdown in manufacturing. We will round out the week, and the first few days of 2008, with the ISM non-manufacturing survey, and the December employment report.

The jobs number will be the major news for the week. If it is good markets will react negatively on anticipation that the U.S. Federal Reserve will hold rates at their January meeting. If the jobs number misses expectations then markets will react positively as hopes for a January rate cut will remain high! 

I have found one of the most difficult things to do in business is make a decision! In large organizations I see a process which often results in analysis paralysis. This is when the numbers are crunched so much that a decision cannot be made. In small companies the problem is often perceived risk, and the challenge is getting over the psychological hurdle of that risk.

This problem crept into my thoughts recently while I was having a meeting with one of my business partners. Together we own an investment company that focuses on acquiring undervalued business assets, and improving their performance. We were meeting one afternoon and we found ourselves at that point where we could not make a decision. This was not because we disagreed, as can often happen with partners, it was because we just were not quite sure what to do. It reminded me of all the times I have wrestled with the decision process in business.

I remember several years ago running into this problem at our old family business. We were making a decision about product development, and whether we wanted to pull the trigger on a new development project. The projected price tag was in the $500,000 range, and I was grappling with the investment decision. We decided to move ahead on that project, and it turned out to be a total flop. To this day I doubt we even recovered 20 percent of our initial capital investment. This was definitely not one to talk about on the resume!

I often remind myself of this project, not to tear down my decision making ability, or talk myself out of a new opportunity, but to remember that I survived. The project may have been a total flop; however, I am still here today. I still have a pulse and I don’t recall being burned in effigy, despite the projects failure. This is my way of reinforcing the idea that failure, while not the preferred course, is also not the end of the world. You just need to learn from your mistakes and move on.

I have developed a list of questions to help me move forward in the decision making process.

1. What is the worst thing that can happen?
2. Can I live with the worst thing that can happen?
3. Are my expectations realistic?
4. Am I rationalizing an answer, or preconception?
5. What are my alternatives, and how do I feel about them?

I can’t say asking these questions makes it any easier; however, I can say asking myself these questions often helps me move things forward, and get on with business. For me business has always been a process of small failures and small successes. I have always just worked to make sure the success side of the ledger has more weight than the failure side!

As a small business owner I have watched international events unfold from the sidelines with a certain ambivalence as to how these events will impact my business. The news yesterday of the assassination of former Pakistani Prime Minister Benazir Bhutto could be the shot felt from Pakistan to Paris to Pittsburgh.

Aside from the major political and security issues created by instability in the world’s only Islamic nuclear power, there are some significant Main Street business issues that could result from the potential chaos. The appearance today is that terrorist groups in Pakistan are now starting to pursue the same strategy they pursued in Iraq over the last several years. Their hope is to drive a wedge between rival political factions in an attempt to create civil unrest.

After yesterday’s sad news oil prices rose and stock prices fell. The fall in U.S. stock prices was driven by the news in Pakistan combined with more data indicating a slowdown in U.S. manufacturing. The rise in oil prices is a direct reflection of the risk created by instability in a nation so close in proximity to the world’s major oil suppliers.

For small business owners the Main Street issue is rising energy cost. Unrest in Pakistan may mean a sustained oil price over $100 per barrel. These higher oil prices will drive inflationary pressures while at the same time taking a bigger bite of the American Consumer’s paycheck. The U.S. economy can only sustain so many blows before it falls into recession.

The events yesterday are a grim reminder that we live in a very small world. Although events around the world may seem distant and the impact remote, the reality is our dependence on foreign sources of energy requires us all to become students of the geopolitical environment!  

New home sales fell significantly in November after rebounding in October, this was well below economist expectations. Construction on new homes remains stagnant as housing inventories remain high. Many analyst believe inventories must fall before we see a full turn-around on the overall housing market.

The fallout from the subprime crisis, higher energy costs, and housing issues all continue to weigh on the overall economy. Although this past year was dominated by rising defaults on subprime loans, many expect the hidden problem for 2008 is falling home prices. The deterioration of home prices in the U.S. is putting many highly leveraged home owners in the position of owing more on their home than it is currently worth. The impact of this problem remains to be seen, but it would indicate that consumer spending will continue to suffer in the months ahead as some homeowners continue to feel pinched!

The entrepreneurs we always hear about are the ones who create their new venture from nothing. However, many business owners get their start by buying their first business rather than starting one from the ground up. Sometimes these businesses are acquired solely because of someone’s desire to have their own show, and sometimes these are simply acquisitions of opportunity. Depending on the individual, many times buying a business is a better strategy for creating a path to entrepreneurship.

When you acquire an existing business you will hopefully start with some up front cash flow. An established entity may also have some assets that can be leveraged to make the deal happen. It is much easier to finance the assets of an existing business than find capital for a pure start-up, and unless you have a lot of cash, financing may be a necessity.

If buying a business is your best route to entrepreneurship, then here are some steps to help you get there.

1. Networking – You need to get to know the people who know what is for sale. Usually this means developing relationships with people who buy and sell businesses. Many times accountants and attorneys are also sources of potential acquisitions. Make sure you have an idea of what you are looking for, and how you will pay for it. No one wants to spend their time catering to a tire kicker who does not have the resources or tenacity to pull a deal off.
2. Relationships – Unless you have a great deal of cash you will need relationships with potential sources of financing. This means cultivating that relationship with your banker. Get a feel for how your bank makes lending decisions for acquisitions, so you can have an idea of how much cash you will need to put into the deal. Use your primary banker as a sounding board. Always remember your job is to convince the bank you are a reasonable risk.
3. Analyze opportunities – Before you start looking at opportunities make sure you have the tools to evaluate good and bad deals. This means being able to do a discounted cash flow analysis, and determining the long-term entity value. Your objective is to develop a tool that helps you measure your return on investment.
4. Create an LOI – The LOI is the Letter of Interest. This is the offer letter which indicates what you want to buy and how much you are willing to pay. The LOI is designed to prevent the seller from negotiating with another buyer while you are doing your due diligence.
5. Understand due diligence – The due diligence process is when you determine if what you have been told about the business is accurate. This is the process which protects the buyer from hidden liabilities, and allows the buyer to confirm the real value of the assets being acquired. This is the inspection process for buying a business.

Of course this is only a snapshot of the business acquisition process, but it does give you an idea of the process you will go through. As you search for your opportunity and go through the process, also keep these things in mind.

• Have a clear direction
• Keep emotions in check
• Be able to measure your investment
• Understand the value of the business to you
• Don’t pay for synergies you will create
• Always remember no deal is perfect, beware of analysis paralysis

In my book, Rough Air Ahead, I outline the process we have used for acquiring new businesses. You can also go to the Small Business Administration site for some tips as well this site on due diligence suggestions.

The Conference Board’s Consumer Confidence Index rose slightly in December, the index came in at 88.6 up from 87.8 in November. The underlying data indicates American Consumers are still uneasy about an economy that is trying to find its footing. High energy prices, falling home prices, and tightening credit continue to weigh heavily on consumer’s minds as they move past the holidays and look to an uncertain 2008!

Durable goods orders were soft again in November as orders rose just .1 percent. The increase in November was well below the consensus expectation of a 3 percent increase, and orders excluding transportation were down . 7 percent. Today’s data does show a definite softening of manufacturing; however, the current decline is not as negative as some analyst have suspected it to be. The economic data continues to point to an economy which is softening due to the impact from a housing recession and the subprime mortgage crisis.