The U.S. economy grew slightly in the first quarter of this year, after growing slightly in the fourth quarter of last year. Preliminary estimates indicate that Gross Domestic Product grew at a rate of .6 percent in the first quarter. Most analyst were expecting the economy to grow modestly in the first quarter, and then retract in the April through June period. Given the current data, rising energy prices, a continued downward trend in housing, manufacturing, and consumer confidence, and rising food prices, we suspect economic growth is going to get worse before it gets better.

The Conference Board’s consumer confidence survey fell again in April to 62.3 from a revised 65.9 in March. This is the second measure of consumer sentiment in the last week that has shown a large decline. The University of Michigan’s consumer index, which was released last Friday, hit a 26 year low. Consumers are concerned about a slowing economy, a deteriorating job market, and rising food and energy prices. At this point many consumers are getting squeezed from both ends!

I ran across this article in Inc Magazine which gives a good description of the types of business buyers you can expect to encounter when selling your business. I believe the article pretty well covers the types of buyers out there, although I think they missed one key type. In the article they do not mention the strategic buyer. This is the type of acquirer who sees your business as a good fit to something they are already doing. Generally they will be able to pick up some immediate cost or market synergies with the acquisition; therefore they will pay a higher multiple for a good strategic opportunity. I believe they are the least common type of buyer, and the one most business owners are looking for!

There were two pieces of news this past week that peaked my curiosity. The first was an article in Friday’s Financial Times that BMW was taking a $370 million charge due to concerns about bad debt and falling prices in the U.S. A European industrial company getting hit by the U.S. credit problems is big news, primarily because it provokes the question as to what the impact the slowdown in the U.S. will have on the rest of the world.

The other story I have been following is all the talk about food shortages, and food riots in the developing world. I did not think too much about it until The Wall Street Journal ran a story Friday that suggests stockpiling food is a better investment in the U.S. than putting your cash in a money market fund. This came on the heels of stories about Sam’s Club and Costco limiting the number of bags of rice that could be purchased per customer in their West Coast stores. There is little doubt that we will be experiencing some food inflation in the coming months, the push on bio-fuels, and overall increases in energy costs, are putting upward pressure on food prices. News such as this adds to the unease in an already difficult U.S. economy!

The BMW story makes me wonder how far the credit crisis will spread. So far it has largely been contained to the financials and housing; however, a spread into the automotive sector could have a pretty significant impact down the line. I do suspect that much of BMW’s writedown is due to the falling dollar. Since they are based in Munich and do business in euros, a sharp drop in the dollar means less profits coming out of the U.S. I suggest watching not only foreign based automotive companies, but also other industrial companies based in Europe.

Because of bio-fuels, and energy inflation, rising food prices are likely something we need to get accustomed to over the next several months. Rising food and energy cost are taking more money out of every consumer’s pocket. If this continues then I would suspect the slowdown in consumer spending to be more widespread, and last longer than originally projected. That does not spell good news for an already slow economy.

The coming week may provide some answers about where the U.S. economy sits today. Tuesday we will get more consumer confidence data, and Friday we will get the all important jobs number for April. The big day, however, will be Wednesday when the U.S. Government announces their first estimate for GDP growth in the first quarter of 2008. This will be the most watched piece of economic news we have had in quite some time! 

The University of Michigan released their April consumer confidence numbers today which fell for the fourth straight month and hit their weakest point since March 1982. The index fell to 62.6 from 69.5 in March. Rising fuel prices have driven inflation concerns, while a slowing economy is motivating many consumers to spend less. The survey also indicates that nine out of ten economist now believe the economy is in a recession. 

It is tornado season here in the Midwest, and in a few short months it will be hurricane season along the Atlantic Coast. Just last week there was an earthquake in Indiana, Kentucky, and Ohio. If you have a disaster recovery plan now is a good time to review it, if not then you should get started putting your plan together today.  

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 U.S. Commerce Department reported today that new home sales fell this past month to the slowest pace since 1991. The median price of a home dropped 13 percent, the biggest drop since July 1970. This is on top of a drop in existing home sales reported last week.

The dismal news in regards to the housing market was followed by an unexpected drop in durable goods orders. New orders at manufacturers fell by .3 percent in March, further reinforcing the notion that the U.S. economy has slipped into a recession.

Recently we acquired a small company that is based here in Dayton, Ohio. In May we are closing another business that is in this same general market. Between the two operations we will have one sales office, and two manufacturing locations. Our plan is to consolidate those manufacturing operations into one facility. This leads us to the inevitable question of whether we should lease space, or buy a building. 

This is a question that plagues many small business owners. Once their business has started to grow, and they are generating a respectable cash flow, the question of whether to lease space for their business or buy space for their business comes up. The answer of course is different for everyone. It is dependent on the amount of space you need, your comfort with continuing cash flow, and if you want to invest in real estate. If buying a facility for your business fits your needs, it can be a profitable venture.

If it does fit your needs then owning your facility will allow you to build equity in an investment over an extended period using cash flow from your business. If you borrow to buy or build your facility you will get a tax deduction on the interest you pay on the loan. You will also get a tax deduction on the building’s depreciation; however, you will have to recapture the depreciation as a gain when you sell the building. Most will suggest that you create a separate LLC to hold the real estate. This helps limit some liability for your primary entity and the primary entity will earn a deduction on its rental expense.

If your business has the cash flow to do it, being able to build long term equity in an asset, while using cash flow from the business, can be a profitable venture!

I ran across this article in the Small Business Section of The New York Times which discusses the challenges some entrepreneurs are having raising their rates in today’s difficult economic environment. Several years ago I attended a management training class led by Larry Steinmetz, who owns High Yield Management out of Boulder, CO. Larry’s specialty is teaching people how to sell at prices higher than their competitors. Larry has written a couple of books on the topic and still does some seminars around the country. You can look at his site, and I suggest at the very least getting a copy of his book, it is worth your time.