The Capital Trap

July 25, 2010

(or why my printshop isn’t like a transformer)

It’s been a while, gentle readers, and I’m sure that many of you have given me up for dead. Well, to paraphrase Monty Python, we’re not quite dead yet. Nonetheless, the images of loading bodies onto the two-wheeled cart are ummmh . . . ominously relevant.

It’s been a very rough two years, and I’m still looking for the corner to turn.  This may be a recession in the rest of the U.S., but in our small market, it feels a lot like a depression. We are struggling with a bad combination of circumstances. We have fewer customers with less money and greater reluctance to spend it. This is coupled with a sea change in the way we communicate that has not at all favored our core business: print. And to state that our resources are limited would be a wild exaggeration. They are simply nonexistent.

I’ve read about the capital trap. Usually it refers to banks and the total contradiction of government demands to both lend more and raise capital reserves. This is prima facie lunacy. How can you do both? Like most small businesses, the printshop behind the red awnings has been slighted when it comes to government largesse; and the banks quit lending to us before the balance sheet deteriorated to the point that Poor Richard could actually understand the bankers’ reluctance.

Poor Richard would like his business to become a Transformer. I’ve always been a little intrigued by these gadgets. The Transformers came along in my college days . . . I remember a slightly older friend’s 5 year old showing me the first one. “Now it’s a car, now it’s a monster machine!” he said as he pressed the button that released the monster.

“Now it’s a printshop, now it’s a monster communications machine!” Alas, were it only so.

The new “marketing services” that we’re all supposed to be so excited about providing did not gain traction in our little town. We’ve done a little, but the time requirements have been high and the return low. There are some product opportunities, but at this point we lack the capital resources to pursue them.

Our little shop is caught in it’s own version of a “capital trap.” When things were good, we invested in what we thought would be the capital equipment that would keep us growing in years to come.  Justification of the equipment was based on the ill-conceived (in hindsight)  notion that business would grow a little, or at least remain stable at mid-2000s levels. In our case, we still have the equipment, but the demand for the production has faded. We’re paying for the equipment, but it isn’t paying for itself.

In a different time, we would just sell the machinery, stomach a little loss and move on. Now, the only market for the machines we have purchased is overseas and the selling prices really don’t even justify the trouble required to move the equipment.  Unfortunately,  the notes on the machinery are not based upon present valuations, but upon the value of the machines before we warped into a parallel universe where printing equipment is worth little more than scrap metal. Naturally, the banks and leasing companies are reluctant to simply concede the devaluation of the machinery or the obligation. It’s kindof like real estate . . .

There is very little solace in the knowledge that we’re not alone in this predicament. Poor Richard has a friend, customer, and fellow small business owner in a completely different line of work that can describe the same scenario; and I suspect that every small business owner can tell some version of this or a similar tale.  Here’s the point:  we won’t be able to grow ourselves out of this depression until we can pay off some of the debt burden that we’re saddled with.

Somehow, the politicians (and the media) have the strange idea that small businesses are “reluctant” to invest and to hire new people. They think that all we need is the right “stimulus.” The latest platitudes and lip service from the pandering politicians of the Potomac comes in the form of a $30 billion fund to encourage regional banks to lend to creditworthy small businesses (see the Business Week article). Poor Richard wonders just who that would be. Wake up! It’s not reluctance that is the problem, it’s resources. I am very skeptical that the small business economy can be “transformed” by simply flipping a magical economic switch and not the least bit convinced that there is yet any understanding of the importance of the small business segment of the economy among those who ostensibly govern our nation.

Reluctance does come into play when it comes to taking on more debt, though. Most of us will never be as comfortable with debt as we may have been before the economic debacle. The good news is that the debt we currently have will one day be retired. The payments do eventually come to an end.  Somehow, some of us will manage to work ourselves out of this predicament; probably despite the feeble efforts of the politicians.  We’ll hold on  until we can find a little money to try the next best thing. And maybe that next best thing will work and we can make some money and then invest in new equipment and hire new employees.

Maybe we’ll even invest in new businesses . . . wonder how medical marijuana would grow in the basement of the old building on Poplar Street?

Life is still grand!

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Bailout, Please?

April 1, 2009

At first, I wasn’t even interested.  After all, bailout funds have something of a stigma about them, don’t they? What with AIG, the big car companies, and greedy bankers all clamoring for more, it’s just a little embarassing for a small businessperson to go out looking for the government dole. We’re supposed to be the proud and determined entrepreneurs that keep the country productive and innovative and 16 other patriotic sounding adjectives.

After 17 continuous months of recession, though,  things were getting kind of desperate.  Actually, Poor Richard didn’t realize that it had actually been 17 long months until he heard it on the radio.  They kept the first year a secret for a while, you know. Anyway, because the level of desperation is inversely proportional to the level of funds in the company bank account; when the desperation got high enough, I made the phone call.  After all, I rationalized,  if all this money they’re printing isn’t  going to be worth a plug nickel in the long run, shouldn’t AlphaGraphics get some to spend before everybody else figures it out?

So Poor Richard called Saxby Chambliss’ office in Macon and asked to speak with the Senator. A very nice young lady informed me that the Senator doesn’t really actually even ever stay here in Georgia, because it’s too far away from the center of things where all of the important stuff happens. She asked me why I was calling.

“I’m looking for some bailout money,” I responded, then decided to sweeten the pot. “Of course, I’ll be willing to sell up to 99% of the stock in my company, if that will help.”

“Oh, that would be most helpful!” she answered, “and exactly how many billions of dollars does your company need to stay afloat?”

Not wishing to be greedy, Poor Richard responded that a few million would actually do quite nicely. This didn’t sit well with the young lady in Senator Chambliss’ office, though.

“Only a few million?” came the huffy response, “I’m not sure that the treasury department is set up to administer bailouts in such small amounts. I’ll refer your inquiry to the Senator, but perhaps you should contact the Federal Department of Largesse and see if they have a block bailout program for smaller concerns like yours.”

She was kind enough to give me the toll free number for the Department of Largesse and then hung up the phone muttering something about the time wasted by common citizens who feel entitled to call Senators’ offices. Feeling bold, nonetheless, Poor Richard placed a call to the Department of Largesse and immediately became entangled in the voice mail system.

“To assure the highest levels of service, please state your name and input your 9 digit Federal Employer number,” droned a disembodied voice.

I complied.

“Your call may be monitored to assure high levels of service,” continued the voice, “and your phone may be tapped to assure that you are not speaking regularly with Osama bin Laden or other Al Qaeda operatives. If you wish to continue, please enter your SIC code and the amount of governmental largesse that you wish to request.”

Once again, I complied. Not wanting to be greedy, I punched in 7,500,000.  “This is really kind of easy,” I thought.

“Please be advised that if you are awarded funds by the Federal Department of Largesse, your salary and bonus package will be limited to a measly $500,000 annually.  In addition, you are warned not to openly redistribute government funds among executive employees in such a manner that the news media or the public might discover your abominably irresponsible and unpatriotic behavior. If you agree with these terms and conditions, please press “1” to continue.”

Having no difficulty with the conditions, Poor Richard pressed “1.”

A long pause ensued, followed by a click as my call was transferred. Poor Richard could hardly wait. “Now I’ll get to talk with one of the customer service reps and tell them where to mail my $7.5 million,” I thought.

The phone clicked once more and another computerized voice queried. “Our records indicate that the asset value of your business is less than $10 billion dollars. Is this correct? If ‘yes,’ please press ‘1’ now, otherwise hold for the next customer service representative.”

With all good intentions and still hoping for the best,  Poor Richard pressed “1.”

“We regret to inform you that your business has been deemed insignificant by the Federal Department of Largesse,” sounded yet another automated attendant. “The SIC code you entered indicates that your company is involved in the business of printing. Printing is not considered to be a relevant economic activity, nor is it eligible for funding under President Obama’s 21st Century Initiative for Green, Energy-Efficient, Barely Conceivable and Totally Impractical Projects.”

“Please press ‘1’ if you’d like to speak with a customer service representative,” the voice continued. “Our current hold time is estimated at 16 years, 3 months, 2 days, 5 hours, 16 minutes and 35 seconds. Calls will be served in the order that they are received. If you’d like to be considered for a consolation prize, please press ‘2’ now.”

Feeling despondent, Poor Richard pressed ‘2.’ “Please hold,” came the voice.

It took a minute before I realized that the background music playing while I waited was familiar. It was Ray Charles singing about Greenbacks . . . “just a little piece of paper, coated with chlorophyll.”  I confirmed my mailing address with the last automated attendant and was told to look for my consolation check in the mail. In closing,  Poor Richard received a firm promise that the Department of Governmental Largesse would always endeavor to reallocate the resources of this great nation from each according to their ability and to each according to their need.

$100 Bill

$100 Bill

I’m still waiting for the check. You know, Lincoln ain’t gonna get it, Jackson neither.  Maybe they’ll send a fresh, crisp $100 bill with Poor Richard on the front.