Trends (Or lack thereof), Risk Management, and When Do We Peak?
A Brief Economic Update
In May, we added 306,000 new jobs. In June, 209,000. That’s a bit of a drop, in fact, the lowest in 2 ½ years.
30% of jobs created were in government, which is not a sign of strength.
Oddly enough, the ADP payroll report had 497,000 jobs added in June, up from 267,000.
Unemployment dropped to 3.6% from the previous month’s 3.7%.
And job openings are at 9.8 million.
It’s still a pretty good economy other than the interest rate thing. It seems if you were going to look at a trend, it would be the lack of a trend that is a trend.
Next week, the CPI is expected to drop to 3.1% overall or 5% for the core CPI. We shall see.
At any rate, the conjecture is that the Fed will continue to raise rates. So you should plan for it.
Speaking of planning…
Risk Management for Your Business
It isn’t until a business reaches a certain size that owners start to think of risk management beyond what your carry on your insurance.
Bankers think about it all the time and incorporate that into a business borrower’s credit request.
Industry Risk, Competitor Risk, and Economic Risk, just to name a few.
There’s also environmental risk.
In some states, you also have to take into account political risk.
In other words, how influential are the current politics for the industry you are in?
Here’s an easy one: arms and armaments. In other words, guns and ammo.
That industry is on the “Unbankable” list of many banks, so it’s going to be tough to open a new account.
So, why do I bring this up? Three things.
One, just this past week, the California Air Resources Board – CARB - announced that they would be making a ruling on industrial gas ovens. As in banning them to reduce NOx emissions.
I’m guessing CARB thinks that a space heater is a great substitute and that bringing in a 4000-volt line to power your plant is just like running a big extension cord.
And here’s the fun part. Each of these companies will need a backup diesel generator to power the plant when California unplugs its last nuclear plant.
…uh oh, I’m starting to rant…
Two, the EPA has ruled that new dishwashers have to reduce their water usage from 5 gallons per cycle to 3.2 gallons per cycle.
Oh, and reducing energy use by 33%.
Three, just ask any truck driver in California when he or she has to have an electric rig.
That would be 2036.
I will restrain from my rant for now. Let’s just say 13 years can fly by very fast.
At any rate, you have to factor in any impacts on your industry and, by association, your company for not only customer habit changes but environmental and regulatory changes as well.
That also applies to your vendors.
I’m betting that when 2036 rolls around, your trucking costs are going to increase just a tad.
If you make parts for dishwashers, at what point do people not buy them because they just don’t work? Conversely, if a key customer is an appliance manufacturer, you might look at other avenues.
Or you become a supplier of replacement parts so people can keep their old dishwasher longer.
So, what’s the solution? Planning.
Sit down with two key customers, two key vendors, your CPA, your attorney, your insurance broker, and, if you have a borrowing relationship, your banker (assuming they know your business). Have a 90-minute brainstorming session (all of them in the same room, if you can) on what is going to happen to your industry over the next 2, 5, and 10 years. The benefits:
One, if you don’t have one already, you have just established an informal – or formal - Board of Directors.
Two, you’ve made some very good introductions within your inner circle.
Three, you won’t be making your decisions in a vacuum.
My only caveat here is that your vendors and your customers have to be people you know, like, and, most importantly, trust, or it can get weird, and it might bother them when they learn you will be pivoting your business on them.
Post Script to Risk Management: Anita’s Mexican Food uses industrial gas ovens to cook their tortilla chips and other food products. They have 300 employees in San Bernardino and the general manager states that they are committed to doing their part to help with the air quality. In fact, they already have the best equipment in their plant in Tennessee. Wait, what? As it turns out, they have already dipped their toe into the Tennessee pool. I’m guessing they have found that it’s a wonderful temperature, even though the humidity might be high in the summer. If Anita’s is a key customer for you, you might want to make that part of your risk management conversation.
When Do People Peak?
Well, if you are the 91-year-old composer John Williams, you don’t. But if you are like the rest of us mortals…
In sports:
For swimmers, early 20s.
For powerlifters, 35.
Endurance sports, by 40.
Sailing and equestrian – tactile, low impact – you can still compete in your 50’s.
Mentally, there are two types: conceptual and experimental, per the Ohio State University.
Conceptual thinkers peak at 25. Those who tend to continue to refine their work based on experience, publish papers well into their 50s.
Chess players improve sharply until 25 and peak at 35.
Vocabulary peaks at 65.
Here’s the best part: the ability to think quickly and recall information such as names peaks at 18.
I disagree. I’ve never been good at names; I guess I’m still waiting to peak.
“Who am I, and why am I here?” is my motto.
And Finally… Take a Vacation
I won’t get into the details, but time and time again, studies have shown that vacations help you with your job performance. The evidence is overwhelming. It helps clear your head and gives you a fresh perspective when you get back to the job. Many companies do not let you accrue your vacation, and they mandate you take it. As a business owner, you should be taking time off and also making sure your shop foreman or accounting supervisor is doing the same.
Enjoy the time off!
