Real Business Sense

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The economic principles effecting business fill a textbook. The importance of understanding them holds true if you own or simply manage someone else's business.

The axioms covered here are only to open your eyes to a few of the basics so you will be inspired to look further into this subject.

ECONOMIES OF SCALE AND DIMINISHING RETURNS
The point in the first stage is to reach economies of scale. This means that your profit and loss sheet has reached the point on your supply curve where marginal cost is equal to marginal revenue. In accounting terms, it is called the break-even point. This is your optimum production. You are meeting the demand of the market with the amount you are supplying.

This doesn't happen in the short term with new business, but it is a goal to set for yourself or the business you are currently employed by. If for some reason, whoever is in charge refuses to listen to this common sense economic law, it is time to move on and start freshening your resume.

If your products, are costing more to move out the door than the dollars rung up at the sales register, then it is time to take a good look at what the problem is. The idea that things will get better in the future is fruitless. There can be a couple of reasons for the price being too low. First let's get some more insight.

Here is what it amounts to in the beginning. The cost of getting the first item out the door is the cost of building the location, all the planning, and other details that went into putting together your assembly line. The price of hiring and marketing, of course, are also a part of the picture. The price of putting the second item out the door is the hours that the men spent putting it together. There is also the overhead, which goes along with the warehousing the operation.

The larger the production, the lower the price until you get to the marginal cost and marginal revenue point on your supply curve. There is a point in the curve where it eventually turns almost straight and then begins to turn upwards once again. You, or any manufacturer/producer is then at the point of diseconomies of scale or diminishing returns. The increase in production cots more than you are bringing in.

There are two sides to this coin. Being, at this point in the supply curve of your business means that you are ready for expansion. The inherent problem is that most businesses fail to plan for this need. They find themselves scrambling to keep up with increase demand.

This can come in various forms for different types of business. This can include increased man-hours, larger amounts of basic ingredients from a producer who charges more; and the biggest catchall is the need for larger and more efficient factors of production. This can include everything from moving to a larger plant, hiring additional staff, or buying equipment, which can put out heavier loads.

The only way this growth problem can be solved is to put away money from the beginning revenues to plan for this growth. If you don't plan ahead for this growth, then you might as well as stay at the staring gate.

Companies, these days, are finding more and more creative ways to deal with this issue. This includes mergers, acquisitions and IPOs. These methods allow a company to take someone else's assets and use them for needed growth.

On a final note, if your business, or management level, doesn't allow you the knowledge of how much your marginal cost is, you have a major problem. Hopefully, there are available numbers to crunch for a much-needed analysis.

There are two ways to keep a business going. One either gets to the point where marginal cost is equal to marginal revenue on your own; or one gets in the public offering business then uses the increased revenues to get your profit and loss sheet where it belongs. There are no other options. This economic principle is as sure a thing to the steadiness of a business as the surety that a ripen apple will fall from the tree at the correct time.

UNDERSTANDING THE TRUTH BEHIND COMPETITION
During the 25 years I have been following economic news, I have never read a piece that correctly dealt with the issue of competition. When a market gets deregulated, it becomes a story for the first few years. However, the only major issue, which seems to come up repeatedly, is that now consumers have more choices. The reporters seem to agree on one thing. They seem to think that more choices immediately make things better for the consumer.

The answer to this is perhaps. More choice doesn't necessarily mean you are getting a better deal. A better deal also means a good reliable product. Often, during the early days of a newly deregulated market, that's not the case.

It has been so long since the break up of AT&T, some may have a hard time remembering all the little mom and pop phone companies and repair shops, which sprung up. Many tried giving better prices, but the truth is that most are no longer around.

New market entries are always shaky. They don't have a reputation to keep them going in bad times. They play around with various pricing gimmicks. They may have to depend on the old timers in the game when it comes to leasing of capital equipment. In the early days of deregulation of the phone company, the newbies were leasing their lines from Ma Bell. It gave them an edge for the time. Leasing is cheaper than starting to build capital equipment from scratch.

Yes, things have slowed down and created a calm after the craziness of the breakup of Ma Bell. But it doesn't mean that the rules regarding competition have changed. It simply means that the market has moved into another phase. Why is this relevant still? It's easy. There will always be knew markets opening. You need to know what you are dealing with before jumping in.

The point to this discussion boils down to a very simple principle. Competition does offer benefits for consumers, but not in the beginning of a new or expanding market. You need to have patience to await the fall out.

Consumers need to consider the need for customer service or location of a vendor if they are easing into a new area. Where is the person located that you will want to complain to? Does the company maintain a customer support group, which charges you for phone calls? All of these are things to consider.

Now, when it comes to moving your business into a competitive market, there are some other important issues. The majority of the populace has been convinced that there is absolutely no room for the mom and pop shops when there is a Goliath in the region.

Not true. But you have to realize what game you are playing if you want this market work for you. Even if you are settled with a business in a specific market, there will come a time to expand or a time to shift your territory. You need to understand how to deal with the encroachment of chain in your area.

The big guys fall when they try to be all things to all consumers. The fact that Wal Mart is still successful doesn't mean this principle doesn't work in the long haul. It was admitted to me by several Sears top execs in several stories I did on them in the 80s. They had been going with the idea that they wanted a consumer when he was a baby and be able to offer him/her financial services that would help make a better retirement package. Little by little they began divesting themselves of the companies they picked up along the way because they realized that their cradle to the grave philosophy wasn't working. Trying to make it happen almost ruined them.

If you haven't heard the latest, Sears and Kmart are in the middle of a merger. Wal Mart and its business practices have been going against several economic principles for awhile. There is no space to go into the entire picture here. Suffice it to say, if they don't mend their ways, they will reach the point of diseconomies of scale in the near future with no way to bail. They have been to busy making too many enemies.

This is all to say that the fact that Wal Mart and others like them exist does not mean there isn't room for the smaller guy.

Here are some things that the big guys have a hard time with. The little guy has an advantage that no one would have thought of. Chain stores have a difficult time specializing in any category of their product. After all, they yell and scream on prime time television how they go to all this work to bring you the lowest prices on everything. Even though Wal Mart does its best to offset the idea that the big guys can't get to know you, it will never compete with what the smaller market entrants offer.

Two bookstores have existed on the same main drag of Pasadena, California for almost twenty years. One is a well-known chain, while the other is a mom and pop, which has been passed down to the second generation. It has maintained its space on Colorado Blvd., while big chains stores in the droves have come and gone in the same area. These people will special order just about anything for you and guarantee it will show up in a couple of days. And, no you don't have to pay ahead. The big guy's store doesn't get special orders in quicker than a week and you pay upfront.

The smaller store maintains a very large inventory of out-of-town newspapers. The bigger store keeps a few. When a customer comes and asks for something not on their shelves, they automatically send them down the street.

I hope this is sparking some ideas as to how you can personalize whatever business you are in charge of running.

There is only one valid premise that actually explains why a competitive market might be better for the consumer. More market entrants means they have to spend time and energy chasing after their returning clientele more vigorously than in a controlled market. Therefore, if you don't get what you want one place, there is bound to be a vendor out their willing to meet your needs.

It can take years for the market to iron itself out. It can be a decade, give or take. Just think back to when the general population was learning about the Internet. The same thing holds true every time there is some major shift in software or hardware markets. There are so many changes, you don't quite know where to jump. The key is to wait. If you chose a product/or vendor during the expanding of a new or recently changed market, you may very well find yourself out in the cold later. If you do decide to go ahead and chose a new vendor during an emerging market, it might be a good idea to pick one that is close by. As one of my good friends used to say, 'bitching distance' is always something to consider.

COMPETITIVE ADVANTAGE
This is an important concept that is usually discussed in terms of the workings of the world market. However, it is also very relevant when it comes to new market entrants jumping into an emerging market.

The big guy who has been on the block the longest in any particular market should have a competitive advantage over those just moving into the territory. Two examples of shifting markets make this easy to understand. The breakup of the phone company has to go down in history as the biggest shakeup in any given market. (Probably, right behind the initial moves of OPEC in the late 70s.) Here is the advantage that Ma Bell had over everyone else who was jumping into the arena. They had been playing the game of phone service provider for a long time. This may sound simple or contrite, but it is the truth. They had the longest established reputation of knowing how to get the consumers to come crawling back to them time and again for new products and services.

I can hear the gainsayers already scratching their collective heads. If the buying public of phone services was miserably unhappy with Ma Bell, there would have been a black market in communication service. Piss off your customers too far and they find an alternate source. This is true even if they had to start one themselves.

Ma Bell still had the advantage for awhile. New guys had to rent equipment that belonged to the old guy on the block. You didn't see anyone going around putting up new phone cable. There were several independent companies who one could lease line time from. But, for the most part, when it came to line time, Ma Bell was only game. They, meaning any part of the old conglomerate, didn't have to pay to get new capital equipment up and running to deal with new business. Their only cost was repair and maintenance.

When it came to phone repairmen going independent, they proved to be the one exception. They were able to get a good deal on renting trucks and equipment with their service package when the layoffs came. There were groups of ex Pac Bell guys who got together and worked very successfully at installing and repairing on their own. They knew the territory and had the equipment. It was a fluke in a market. If you can find one that comes close to this, jump on it.

Does this mean that nobody new should ever enter any market? It just means that you have to know what you are getting into when there are some established market players who have been around for dozens of years.

Then, of course, there is also the factor of name recognition. This is a marketing tactic, which is ongoing from the day one opens his/her door to the business world. It is going to take awhile to catch up with the guys who have been hanging out their hats longer. Until this is accomplished, the other guys on the block are going to have the competitive advantage.

UNDERSTANDING HOW TO PRICE YOUR PRODUCT
If you are in business, you have to properly understanding pricing. This is true whether or not you are managing someone else's or running the place. Correctly pricing your product or service is the first key to getting you on the way to a healthy and long-lived profitable company. Without this knowledge, you are going to end up in bankruptcy court if you don't pick it up along the way. You will have to play around with pricing along the road to success and market changes. This is a given. The pricing I am talking about is what you need to know before you open your door. If you are already out in the market, you have some idea as to what the market is currently bearing. There is more to it than that. Just because a competitor is putting out a bottle of soda at $.80 at a discount store doesn't mean that you can afford to do the same thing.

You have to understand that there maybe a difference in where that competitor is on his supply curve. It may well be that it is costing him much less to push that product out than it is costing you. No one has ever said the only way to get it over on your competition is by having a lower price.

Otherwise, the convenience store at the corner or the guy selling soft drinks at the beach on a miserable summer's day would not have a market. Pricing is not everything, but it is certainly the key to making sure you are working towards that point of marginal cost equals marginal revenue. Pricing your product too low means that you are simply never going to reach that point and will wonder for years why you are running in the red. You need to know your overhead and everything else, which should land on the cost side of the balance sheet before you put your product out there.

Don't make the error that in the early years there will be tons of money spent on marketing and you would truly be making a profit if that cost was eliminated. One very well-known Internet service provider operated on that premise for years. They wanted to get to the place there they could legitimately claim the number two spot in the market. This they figured would push them over the edge.

This put them in the position of going through two mergers and an acquisition. This gave them the ability to put someone else's resources on their balance sheet to give them an edge they couldn't legitimately claim. They finally got some folks together who convinced the regulators to let them go public. The last time I looked at their annual report, they were still in the red.

They were not pricing themselves so that they would ever be profitable because of the error of not correctly counting their overhead. Knowing what your costs are in production, whether product or service, is essential.

Not only that, you need to spend the time to dig up the facts of what the overhead is of your nearest competitor. In order for you to make an extra effort of making a name for yourself, it is worth taking the time to know what your competition is doing.

There is one great secret that no one has bothered to tell you about competition. There is room in most markets for a great many winners. The only unanswered question is just how big you are going to win. When there is no more room for other profitable entrants, you will see a shrinking market. As long as others are opening their doors, there is still profit to be had for anyone who puts the principles of economics to use, along with a taste of good marketing and business sense.

Pricing is tricky. Soda is a good example. You don't always get more for a bigger price. In fact, sometimes, a smaller bottle costs more than the larger one. The thought of convenience comes to mind. If the product is easier to use, consumers are sometimes willing to pay more. Ring any bells? It is also relevant to those who want convenience and are willing to pay more if they have bad credit or are too young to have established any. The prepaid cell phone industry is big business and looks to get even bigger.

BOTH LAWS OF SUPPLY AND DEMAND
This principle sounds so simple and so easy that any five-year-old child ought to be able to grasp its concepts. But, oh, there are twists and turns to these principles that aren't obvious at first glance.

Basically, if the product you are pitching is hard to find and costs a lot to produce, gold comes to mind, the more you get to charge for it. Customers are hungry for it and are waiting in a line that goes around the block.

This is how it works in the market's simplest of forms. Let's look at a few ways this can get complicated and change the market picture. This can be true for both a micro and macro market. Before we jump off there, let's look at the picture of how this effects the value of money. It is really easy when you give it a minute to think about it. But, for some reason it sure those confuse many folks who are trying to get a grasp on the basics. Too many dollars floating around means you have to spend more of those dollars to buy whatever is on your current list of needs. This is what was going on during our days of raging inflation. Remember those. We had interest rates going at 22 per cent and more. Customers were urged to spend what they had in their pocket since it was losing value. This customer spending habit has remained partially to our day. We know we are no longer living in that type of economy, but spending habits are hard to break just any other ones. Vendors still appeal to their consumer bases similarly. 'Get it now while it is still a bargain and we still have some left in stock.' Dollars are no longer losing value at any comparable rate. It doesn't seem to matter in the scope of advertising campaigns.

There are different events, which change demands for products. Cartels are formed, think oil. Different markets are deregulated. And, there is a change in technology. When new drilling methods are invented and put into practice, minerals and energy resources become easier to bring to market and supply increases.

Take a look at your market or one you are thinking of moving into. How much of a demand is going on a regular basis. Quarterly, monthly and annually are all to be taken into consideration. If these numbers are on a downward spiral, it just might not be a good idea to jump into that market. If one dared to venture, probably the most likely way to go is discount. If your company isn't open to going this route, it is best that you jump over to another candidate niche.

The second law of supply and demand has to do with pricing. This is not something I just dreamed up. It is a fact that exists in the marketplace and probably has been as soon as the market was organized enough to play around with pricing.

It has hard to conceive of any given market when prices were so steady that unreasonable changes would be a shock. The last time this happened in America's aggregate economy was during the 1950s. Most things were stable. This goes for everything from the price of groceries to mortgage rates. The only way for a business to increase revenues was to sell more.

Thus raises the question that explains the second law of supply and demand. We all know that most markets play around with pricing from time to time. When there is an increase in demand, it is a message to vendors that they can safely raise their price. The unanswered question is, of course, to what degree. Of course, no one can accurately predict the answer to that, unless they take the time to look at the history of a particular market. This is something that the regulators controlling the distribution of gas for motorists forgot to do in the late 1970s during the oil crisis. They erroneously figured that if the price of a tank full of gas was upped that consumers would immediately jump into the diamond lane, join carpooling organizations and trade off with taking the bus.

One of the hardest habits to change, despite price swings, is consumers' transportation habits. If those in power had taken time to look into the history of this, they would have seen a better picture. This tenacity in consumers was discovered early on in the San Francisco area when they introduced the BART system. Despite the greater convenience to those who filled the highways daily, it was a big fight to get them to shift over to this public transit.

This reaction of holding on to former buying habits for dear life with upward swings of prices differs from market to market. Gasoline prices are an unique example. Despite the fact that there are alternative choices for the consumer, they are willing to hold in for quite awhile despite the pain to their pocket books.

When it comes to other products, this tenacity may be somewhat shorter. Then we can witness in the market what economists call the substitution effect. When it comes to food products, we simply buy a cheaper cut of meat. There is a bit more involved than changing what they are going to have for dinner.

Now, that you understand that customers continue to come for awhile when you raise prices, you can use this juicy tidbit of economic understanding to make wiser marketing decisions. This should bring up your bottom line.

TRULY UNDERSTANDING PROFIT
Perhaps no other economic principle has been as misunderstood as the fact that profit is what makes the world go around. It is the only reason for starting your own business. If you ever find yourself in a position of working for someone who seems to find this concept too much for him/her, it's time to flee while you still have your sanity.

I attended a seminar that was mandatory for my degree. It dealt with economic news. I was the only one sitting in on it who had ever spent a minute taking a class in economics. The misunderstanding was so widespread I left the room pulling at my hair. Listening to the attendees can only be equated with taking part in a meeting where the audience was convinced that the earth was flat. Anything you had to contribute was simply going to bounce off the walls and land on deaf ears.

The discussion of the day had to do with the current problems of Mexico. Anyone who follows the news realizes that this country has had ongoing problems for years. The ideas floating around during this particular chat dealt with the woes the country was suffering after outsiders/foreigners had come and robbed the country of its profit. And, of course, after they 'snatched' the profit, they left.

Profit is not something floating around in the air for anyone with sight to grab and steal for themselves, while the rest of the country/market continues their suffering. This is not to say that there hasn't been a breed of robber barons during the course of the worlds' markets. We now have laws that take care of those possibilities. I realize, of course, that no such restrictions can control foreign markets.

But, the point is that as long as more resources exist, there is a chance for someone to come in with the insight and determination to turn a profit.

Let's stop for a minute and go back to the basics of these questions. Anyone who has gone through the throes of business school has a good chance of coming away with an erroneous idea of what profit is to begin with. I took a class in Urban economics in which the professor hit the nail on the head immediately.

"All those who have already gone through accounting, throw out all your concepts of what profit is. It is not the money left over after you pay your costs for the year/quarter. In fact, if you have left over money, it is a good indication that you might be pricing your products too high.'

Let me open the door to what he was getting at. If you want to run a profitable business, or work for someone who does, you need to understand the profit needs to be calculated on the cost side of the balance sheet. No one goes to work for anyone else without expecting to get a paycheck at the end of the week/month. But, there are a myriad of business owners who can't get it through their thick heads that they need to include the percentage of each dollar they wish for profit before they send the first product out the door.

One semi-intelligent professor, with whom I was dumb enough to join business forces with for a time, told me that profit was something one hopes to find somewhere down the road.

The day he was ignorant enough to show me just how much he didn't know was the beginning of the end of our relationship. Life is too short to partner up with someone who hasn't got a clue how business works.

It is really not all that difficult. Running a business or managing one, this concept is just as important. How many pennies of every dollar do you want to bank as profit? Once you grasp this and have the courage to put it into action, you are on your way to a healthy business. Why in the world would you want to go through all the energy it takes to be manager if you can't see that what you are managing is earning profit? There is no profit down the road. Just look up the latest stats on Earthlink. If you find some not in the red, I guarantee you someone is fudging somewhere.

The only way to ensure that you earn profit is to decide on the percentage to set aside and put it in the budget/cost side of the balance sheet. There may be days when you can't bring in as many pennies from every dollar, but you will be earning profit. If you don't set up your books in this manner, it is time to close shop now. It will be a lot less painful than continuing.

The only way to move around this principle is to snatch someone else's through a merger or acquisition. There are a multitude of other fancy accounting that can confuse folks for the time being that you are not in the red. But, the problem is that it will eventually come out in the wash; and when it is the least expected, and the most inconvenient time.

Grasp the principles of economics. Live by them and you will be sitting high while you watch the rest of the world sing your praises about your brilliant business acumen. Fail to grasp this axiom about profit; and you just plain fail. It might take the world a while to catch up with you, but that it isn't the point. Earn profit or go bankrupt.

PRESENT VERSUS FUTURE VALUE -- The need for research and development.

Research and development is one of several ways that business owners ensure that their company's value will increase in the future. The hope of growth/increased value is really the basis for most trades in all stock markets. All those buying are hoping that something in any given market is going to happen which will ensure that the stocks they hold will move upward. In that particular instance, the movements, alleged increased value, can sometimes be based on nothing more than a change of wind.

Examples of change in the wind on Wall Street can include a lowering of the interest rate, somebody new elected office, a war starts or stops. Those on Wall Street are reacting to what they think will influence buying or selling at that particular point of time. These actions have to be born out by time. No one knows until the next quarterly or annual report whether or not the value of any given company is going to go up or down. We will discuss more on this in the chapter on investment.

For now, we are going to zero in on a few things that help, as there are no guarantees, to increase the value of the company. I can see some of the doubting Thomas scratching their head and wondering if I am, after all, nothing but a bunch of hooey. The only thing a company has to do in their mind to increase their future value is to sell more products. We all know that this is much easier than it sounds. There are years when companies go into a tail dive and sell much less of any given product or service. What is one to do during such times? Do we simply sit still and wait for the market to come back. Those that did during the peak of the dot com explosion are still looking for a job.

You can never bet yours, or your company's future, on the bet that you eventually are going to make it to a desired number in any given market; and look to that goal to be what is going to increase your present value.

Staying in the same market niche, continuing on the same road, unless you are selling ice to folks without refrigerators, is not going to gain you momentum. This is one of the main reasons what earlier had become known as R&D. This meant that companies were always on the look out for away to make their product better. This is known as the next generation. Manufacturers are also always on the lookout for new products to add to their product mix. Then, of course, there is the push to enter new or expanding markets.

This is normal in the history of any business. Most all economic resources lose value over time. Just think about the amount a new car decreases in value the minute you drive off the lot. The only way to give yourself a chance that your business isn't going to be worth less in the future is to have an ongoing plan for expansion/growth. This needs to be, of course, part of your business plan. This portion of your business management will need constant revising.

The need for future growth is even necessary when your product or service is bringing customers in the droves. AOL had a lock on the market for years. Their biggest problem seemed to be to get enough customer representatives on board and enough phone lines so that their customers could dial in without having to try 10 times. The only reason that many of the customers stayed was that liked the other services AOL provided.

(For those who are new the online world, there were services available for consumers before the Internet was opened to the public. AOL first started offering a portion of the Net around 1993. Prior to that you had to have either a government connection or work for an university.)

Now after all of this time, AOL is finally feeling the heat of competition from those in the market who are offer similar services at a much lower rate. Those providers aren't about to offer thousands of chat rooms that take place on their web page like AOL. But new users, who have never been on Compuserve or AOL, aren't aware of additional offerings. The market has successfully confused them into thinking all AOL is an ISP, thus putting them into the position to knock them down a peg or so by offering a discount for consumers to connect. This whole story is rather complex. However, it makes the point that even if you are so overwhelmed in your business, that you can't keep up, there will come a point in time where you are going to lose part of your original market.

The only way to avoid this problem is to change up your product mix. AOL, I feel, thought them taking care of that problem by constantly releasing newer versions of their software. What it boils down to, is that it still got you to the same place. All that hype about new versions finally gets old. This has even happen to Microsoft. It has been a few years since there has been any noise about an updated version of Windows.

Seeing the need for increasing the value of your product line/services to begin with will put you in a position where you are growing and you wouldn't have to be trying to catch up with the guy who beat you to the punch. No one else has the luxury of trying to play catch up. The fact that Microsoft has decided to jump into the search engine competition has been enough to stir up news coverage on the subject.

There will come a time when the demand for any given product or service is going to decrease. The market could be saturated. There could be a downward trend in the economy or an increase in competition. It doesn't matter why. It only matters that it will.

DEALING IN A CONTROLLED MARKET
We all would like to believe that we live in America and therefore, we are working and existing in a free aggregate market. Think back to how we viewed Russia and its controlled countries for years.

While we have nothing in this country that comes close to the central market committee, we come nowhere close to existing in an aggregate market without regulation. These regulations directly impact a host of both our consumer and business activities.

In a book I read years back, there was advice for those starting out and making choices that would eventually impact how and when they were able to do business. It amounted to, choosing options, which eliminated as much red tape as possible. The more times the government intervenes in your business, the higher the cost of doing business and the lower your efficiency.

There are markets where the true cost of doing business is hidden. There are controls in place that have nothing to do with the government, for the most part. An example of this the 'key' taxi drivers have to pay for if they want to be able to do business in New York city. Have you ever wondered about the different varieties of products on the grocery store shelves? We all know that there are store brands, national brands and side-by-side competitive brands. The ones, which are displayed more prominently, are there for a reason. There is a premium that has to be paid to the one in charge. I don't know the intricate details of this, but I know that it is a long-standing practice. I once had a small spice company as public relations client. She was trying to move into the grocery chains and failing big time because of this.

Other markets, such as those in the professional world, have barriers to keep amateurs or wannabes outside looking in. Recently, for example, there have been some few concessions, to allow paralegals to deal with some small matters. We have all heard about the fights dealing with nurse practitioners and midwives. These paraprofessionals are finally making headway.

All of these examples are relative to anyone owning or managing a business where there is enough red tape to drive a completely sane person out of their mind.

I can see some one wondering; don't we need these controls? The answer is absolutely, but the other side of the coin is what I am getting after. Medium sized businesses can be come mom and pop shows ready to close fast if they don't understand the cost of doing business in any regulated market. Some smaller airlines, which cropped up after Reagan fired the air traffic controllers went out in a big puff of smoke.

Here is an example of a regulation, which could and does drive some perfectly above board business managers straight up a wall. I think most all realize that banks have a mandated reserve that they are suppose to keep on hand at all times. Banks don't sit on money or they wouldn't have a chance to earn any. They lend to various individuals and other financial institutions and money markets. There are some money markets which only last 24 or 48 hours, for which they are able to bring in a hefty rate of return. (These markets are only available to financial institutions.) I did a lot of temp secretary work in a different life. One of my many assignment was in a fairly large bank, which no longer exists. I remember one day hearing the managers on my floor reacting in a frenzy to a phone call. Their reserves were slightly out of balance. They had several hours to bring in some money or they would be in trouble. Someone had called ahead and notified them that the Fed inspectors were on their way.

Yes, I know that financial institutions have been known to play around in fraudulent schemes and to loose their depositors' money. However, the regulations now in place make it mandatory for many man hours to be dedicated to ensuring their books show the mandated reserve.

This means that they can never to working in total efficiency. There is a nonstop worry that the regulators are going to show up.

Trucking, moving, telecommunications, banking and real estate are just a few of the markets which have regulations that eat productivity. If you are going to move into such a market, make sure you do it with your eyes wide open. Make sure you hire someone who does nothing but look out for the company's interest in dealing with the regulators.

If you are operating in one of these markets, make sure you do so in a manner that maximizes your efficiency. Hire the best when it comes to government compliance.

DEALING WITH THE UPS AND DOWNS IN ANY GIVEN MARKET
We all know that there are ups and down in all markets. The few exceptions probably include formula for babies and insulin for diabetics. In other words, market niches for which there are no substitute products.

The closest you can come to ward off glitches is to offer a service/product someone will always want no matter what. A practical example is software that tells us how to write manuscripts or to run the Net.

Barring that, there will always be times during which you are going to wonder whether or not a new customer is ever going to walk through the door again. A mix of products is an edge, but the real edge is always to have cash socked away for marketing and research and development.

Most all business makes the mistake of cutting back on advertising when the economy hits the skids. Keeping extra cash for just such a situation is a winner and will gain you bonus points in the end run.

I understand that I have switched back and forth in this diatribe from first to third person. The tips and information given here are just valuable for one who is managing someone's business to one who is running or thinking about running his own.

Happy profit hunting!

Laura Bell is Freelance Writer and owner of www.bellbusinessreport.com. The Bell Business Report offers common sense business advice and how-to info for running your business. It takes the everyday headlines apart, dealing with business news, and shows you how to put that information to work for you.

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