The Bailout Blues for Business Owners

Suzanna de Baca -- Expert Business Source, 11/20/2008 10:40:00 AM

Do you have the bailout blues?

This morning I participated in an online chat regarding the future of the economy hosted by the Des Moines Register. Another financial advisor and I took questions from readers about the markets, how the recent elections might affect the markets going forward, and the economy in general. Many of the readers’ questions were about the government bailout of financial institutions and the possible bailout of the auto companies.

The prevailing sentiment among participants was essentially: “What about some help for the American people, here? What about small business owners and workers? We’re suffering, too!” According to the participants in this morning’s chat, many Americans feel that these bailouts just don’t seem fair. 

While I agree that bailing out large businesses doesn’t seem fair, I recognize that the various elements of our economy are so intertwined that rescue packages of some sort are necessary. Fair and necessary don’t always go hand in hand. Providing aid to these institutions is, in fact, helping out the American consumer and the small business owner because keeping them alive will (hopefully) keep our economy running.

Although most Americans understand that allowing banks and huge employers to fail could further impair our national economy, clearly not everyone likes the idea of bailing out companies which were mismanaged or which failed to remain competitive. Certainly, our legislators were not enthusiastic about passing the initial bailout bill, even when they understood the potential economic consequences. Still, legislators recognized the need to prop up the economy as a whole and passed the bill.

For small businesses struggling to stay open, it can seem especially unfair that others who did not run their businesses responsibly are receiving rescue funds. If you are a business owner, you know how tough it can be to run a company be in any environment, much less in a market like this. In today’s challenging economy, countless owners of businesses large and small are facing difficult decisions. Few industries are insulated from the downturn. But small business owners are not necessarily eligible for a bailout-- are you?

Okay, you made a choice to be a business owner and you knew there were risks involved. A terrible economy is one of those risks. And let’s even say in retrospect you may have made a few mistakes. You could have advertised here and not there. You could have managed cash differently. You could have bought less promotional items featuring your logo. But you made the decisions you thought were right, and now you’re having to tighten your belt. Every business owner looks back and sees where he or she could have run the business better. That just part of life.

But if you’d made serious strategy errors, you’d be out of business already. If you’d failed to remain competitive, improve your product or service line, or innovate, you’d be out of business. And you wouldn’t be eligible for a bailout.

True, if your business goes under, maybe 50,000 workers and thousands of related businesses wouldn’t also go under in a domino effect.  Maybe a few hundred or a even just a handful. Either way, it is painful. 

So, yes, it seems unfair. But I do see two sides to the story. Our economy is intertwined and complex. Sometimes you have to save the larger system in order to protect the smaller elements within it. Large financial institutions may have made mistakes. Serious mistakes. But credit is central to the smooth working of our economy. If the financial institutions do not have money to lend, small businesses will fail simply because they don’t have access to borrowing. The bailout may be what allows your small business to survive.

You understand that if you had to lay off ten workers, that would create ten families without income. Those families would stop spending or consuming goods and services in the same way they had. This would impact the economy. Take that times 50,000 or more and our economy is in a much bigger mess. 

I don’t have an answer or solution in this article. Bailouts or rescues are complicated, to say the least. We clearly need some kind of intervention to keep our economy afloat and to protect employees. But eventually, companies must be competitive and self-sufficient. Businesses cannot use leverage or engage in business practices that put them at risk or they will not survive. And a handout will not fix those management problems long-term. We need to hold large businesses accountable for the risks they take, just as small business owners are accountable for their own success or failure. Small business owners learn those lessons quickly – the hard way.

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Financial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice