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HUMAN RESOURCES

Living the New Economic Norm

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The SurePayroll Small Business Scorecard numbers are in for September, and they are pretty similar to last month…and the month before that.

Hiring is up one percent, bringing us to 4.3 percent year-to-date increase. The average small business paycheck climbed slightly, bringing us to a year-to-date increase of a half a percent. And small business owner sentiment remains the same, with 54 percent of business owners saying they are optimistic about the small business economy.

As I commented in my post about the August Scorecard numbers, we seem to be at the trough of an L-shaped recession – in the midst of a prolonged period of underperformance.  And we all seem to have settled into our new reality, which includes continually looking for ways to spend less.

Individuals were the first to show their frugality, slamming on the spending breaks the second the word 'recession' hit the airwaves. We see families opting to eat at home instead of going out for a bite. Head of households are cutting coupons and buying on discount only. And, of course, many have cancelled luxury services such as dog walkers, cleaning services and monthly spa visits. Whether you're an individual who has been affected by a layoff or pay freeze, you certainly know someone who has and will save your money out of fear – or fad – alone.

And then there are businesses. Large and small businesses alike have found ways to save. Virtual office space is no longer just for cool tech professionals – it's for many American employees who work for companies that don't see the point in footing the bill for rent when their workers can just as easily work from home. Companies are also sharing employees and opting for web meetings to eliminate travel costs. If a business is thriving – or surviving – in 2010, they're finding ways to save money.

In other words, after decades of free spending, we've hit the reset button and are living the new norm. All of this fiscal discipline is great in the long run, as it can be used for investment that will help raise our standard of living. However, it's not so fantastic right now. Hording cash in a cash-starved economy equates to hording water in a drought.

While many businesses are sitting on reserves, riding out the uncertainty, we need to be careful that we're balancing the present with the future. We need to save for tomorrow while investing in order to generate income today.

Before you start spending now to generate income, run a working capital calculation to ensure your reserve funds are adequate.  If you're in good fiscal shape and you see market opportunities to ramp up your business, determining if leasing vs. buying is more prudent and performing a breakeven analysis will help you make better informed decisions. And if your idea necessitates funding you don't have in the reserves, a commercial loan calculation can save you wasted time at the bank.

Like I've written before, even though it may hurt the economy in the short-term, risky expenditures by small businesses is detrimental in the long run.

Last updated: Sep 30, 2010

MICHAEL ALTER | Columnist | President of SurePayroll

Michael Alter is president of SurePayroll, America?s leading online payroll service. He received an MBA from the Harvard Business School and holds a bachelor's degree in economics from Northwestern University.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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