Ephraim Eshel - Director of Recruiting

Despite the facts, the analysis, and the headlines it is still difficult to comprehend: How did the whole world veer off course financially and economically? Here is the explanation, step-by-step, mistake after mistake.

There are moments in time when we are witnessing an event that will be inscribed in the history books: hard moments like the beginning of a war, assassination of a leader, attack on skyscrapers or happy moments like a declaration of independence in a new country, peace accord signing ceremony, or the fall of a wall… This is one of those moments.

The moment that Lehman Brothers investment bank declared bankruptcy, or the moment that the big UK banks were nationalized did not appear as historical moments and perhaps they did not register in anyone’s memory as such. Even the moment that the LIBOR interest rate doubled is not memorial-album material, however these moments and the incredible processes that led to them – and unfortunately continue to happen – will get a prominent place in the history books.

The biggest financial crisis since the “great depression” of the 1930’s and perhaps even bigger than that, started at an elusive point in time. It began as an innocent process where several causes joined together and created a positive pressure in the American residential real estate market and in other world markets.

In 2001 the Federal Reserve Bank was busy for several months to counter the recession that started due to the collapse of the dot.com and technology bubble. September 11, 2001 and the terror events that landed at the heart of Wall Street were like an Al Qaeda-guided dagger into the core of the American Empire. This cocktail of events accelerated the Feds’ decision to invigorate the economy by reducing the Prime interest rate until it reached 1% in June 2003, a 45-year low.

Low interest rates allow people to borrow easily but it also reduces the propensity to save. According to the average consumer, when the “cost of money” is low, it makes more sense to spend rather than to save. Low interest rates also encourage companies to make capital investments, expand and increase spending, and reduce the accumulation of cash in unattractive low return accounts. The American public responded happily to the consumer heaven. Within a couple of years savings levels went from 3% to negative levels. The spending and borrowing culture had reached its peak.

During that time in the US economy, a spectacular wave of growth started in Asia, South America and Eastern Europe. The huge flow of investments to these markets caused an increase in their currencies’ exchange rates and government bonds. A price increase of government bonds means a decrease in interest rates, so not only US interest rates went down, but also all major economies experienced the same drop. Credit became more appealing than cash, at least for those who were using it.

The Fed’s interest rate remained at the 1% level for more than a year. In June 2004 the Federal Reserve started a slow increase in interest rates. In this long period of low interest the American mortgage market expanded, especially at the lower end. The Chairman of the Federal Reserve had an idealistic vision whereby low-income persons and also people with low credit scores would be able to purchase homes.

The available credit and the greed of the Subprime [click here for glossary of terms] banks that took a 1% loan and sold it at 1,000% profit pushed the envelope even further and allowed people to purchase inflated-value properties at relatively low interest rates. The demand pushed real estate prices even higher. When real estate prices go up lenders are confident in the borrower’s ability to pay back the loans – due to the increase in value of the property, which the lender holds as collateral.

The action attracted the attention of Wall Street investment banks. A product (mortgage) that has a constant return (interest that is paid by the borrowers) can be used to create Securities . A complete mortgage bank portfolio can be combined to create securities, i.e., mortgage-backed securities [click here for glossary of terms] based on the assumption of those interest payments creating a return on investment (ROI) for the buyers. The investment houses bought portfolios, mixed them, split them, valued risk and created very complex securities that would have enabled them as well as the investors to realize huge returns.

As long as real estate prices continued to climb, the ROI on these Bonds also climbed, and so did the demand for them. Investment houses put pressure on the market to produce more and more mortgages. With that pressure and the hope for high ROI, caution was thrown to the wind. Mortgages were given to people with neither enough collateral nor ability to repay, and investment houses created more and more exotic bonds. These derivative bonds, called CDO (Collateralized Debt Obligation), were very popular by banks all over the world and created by default another derivative instrument by the insurance companies, called CDS (Credit Default Swap). Insurance companies insured the bonds for possible default at an agreed risk rate. More investors were brought into the chase of these “golden eggs” and traded the CDS and not the actual collaterals.

As demand continued, the mortgage companies — especially the Subprime ones — loaned money to people that were referred to as “Ninja’s “(No Income No Job or Assets).

The Bubble kept on growing until about May 2005 when the Chairman of the Federal Reserve Bank, Mr. Alan Greenspan, said that the escalating prices in the real estate market have no basis.

At the beginning of 2006, the Fed’s interest rate climbed to 4.5% and prices of residential real estate started dropping. 2006 was also the year of record-setting profits in derivatives trading. One of the only investment banks that noticed this excess was Goldman Sachs, which in one year eliminated all of its CDO portfolio to the surprise of competitors who continued to amass huge profits.

From the beginning of 2006 real estate prices went down and with it profits from derivatives. During the middle of 2007 several trust funds from Bear Stearns that were heavily invested in them lost so much value that the bank had to shut them down at heavy losses and reduction in their reserves. Since that time many banks exposed the fact that they lost billions in their investment portfolios in the subprime market.

Between mid 2007 and September 2008, losses in the market were not so evident. Government investment funds from China, Korea, Dubai and other nations bought stocks of American and European banks that needed infusion of cash, however the losses in the mortgage and derivatives markets continued to grow.

When banks lose money their capital is reduced. The investments lose value and their obligations such as loans from other banks and certificates of deposit reach maturity and need to be paid. Banks like that may find themselves unable to meet obligations and, even worse in this case found their capital-to-loans ratio decrease to a point of inability to meet the Federal Reserve requirements for liquidity and become insolvent. Bear Stearns was the first to collapse and was sold to JP Morgan-Chase with the federal government’s help.

The crucial day that the crisis went to the next level and became an historic event was September 14th, 2008 when Lehman Brothers declared bankruptcy after failing to secure US government assistance. That was the moment that the world lost confidence in the stability of the financial markets. In what was a unified act, almost all of the private banks and financial institutions in the world kept their cash in house to not loan to others. If an old and established bank like Lehman Brothers can fail you can’t trust anyone.

Credit Strangulation developed slowly between the Bear Stearns and Lehman Brothers incidents. However the day Lehman fell the process became lightening fast. The inter-bank rate doubled in one day, the result being a total freeze of money flow in Asia, Europe and America.

The major corporations bonds value dropped and the stock markets reached historical low points. Currencies all over the world lost value against the US dollar. Scared investors redeemed holdings in markets that were perceived as dangerous. Since then the only financial instrument people want to invest in are US Government Bonds, which are known to be the safest investment in the world.

The credit strangulation is choking the world economy. Despite the trillions of dollars flowing from central banks to commercial banks at low interest rates, and despite government’s declarations to guarantee banks’ obligations and public deposits, trust has not returned to the market.

All major corporations are gearing for recession by reducing expenses and lay off personnel. Thirteen countries are in danger of bankruptcy due to shaky economies with no loans available for their bail out.

Alan Greenspan, the person who prompted the lowering of interest rates seven years ago said a few weeks ago that unless the real estate market stops falling, credit strangulation will not stop.

We are in the middle of a financial crisis and it is hard to say when will it end. The key indicators for recovery will be the US real estate market, the inter-banks interest rate and the stock markets. Perhaps next year with strong leadership from the White House we may see the beginning of the end of this crisis.

Tom McCormick - Director of Value Management Group

An exit strategy is a plan for leaving the business – this can be via sale or retirement. Without a plan for future harvest, your clients will most likely take far less than what their company is truly worth. Without a plan your client will most likely be caught in a situation where they feel as if the business owns them and they do not own it. All too often business owners wait until they are well into retirement age before considering how they plan to retire. It’s very surprising that business ownership is one of the only investments people make where they do not think exit, at the onset. Do you know anyone that invests in stocks, bonds, or even real estate without a plan for what they want to happen?  “I’ll keep the stock till it doubles in value and cash out or dump it if it drops below 85% of my original investment;” yet in small/medium businesses where most owners have made the largest investment in their lives seem to never consider this all so important factor before they commit so much money and collateral.  They just hope for the best instead…

You can begin to teach your clients about their mindset and help them understand that there just may be a better way by at least starting to focus on an Exit Strategy.  There are eight primary types of exit strategy from which your client must consider. Obviously there are many variations or combinations of these eight strategies.

Selling to a strategic buyer – large company that wants your market share
Selling to a financial buyer – generally an individual that wants to do what client does
Going public – “Ultimate Exit Strategy”
Selling to your heirs – they get the business but your client gets their retirement funded too
Selling to your employees – the lunatics get the asylum but the client gets paid too
Liquidating your assets – bleeding/milking the company for everything it has then closing
Enforced liquidation - bankruptcy
Manage for life – working there till you take your last breath of your life at the desk

You’ll help your clients a lot by adding this to a company plan discussion so you can cooperatively determine what they want their future to be. If you teach them to take control and plan ahead with an effective exit strategy you’ll be one step closer to being their Trusted Advisor.

What elements should I consider when establishing an effective Exit Strategy?

Which exit strategy (or combination thereof) your client chooses is going to be dependent upon their situation, their market, their industry and of course their company. Everyone’s situation is different. If you were to find two businesses that where alike in every way (which is an impossibility), the owner’s situations would undoubtedly differ nonetheless. So the first thing to consider when trying to formulate an exit strategy is your client’s personal situation. You have to establish what they want personally, and at what time of their life they want it to occur.

The most important element to consider when establishing an exit strategy is ‘time’. Time plays such a major role in many different areas. You have to consider the timing; is it the right time for them personally - is it the right time for the industry - is it the right time for the company - is it the right time for the economy? You also have to consider the time to complete the transaction. Then you must consider the time needed for the transitional period, which will vary depending on the strategy, the industry, the seller, and the buyer. Time plays a major role in the process. Choosing the right exit strategy is more than just choosing an exit. A planned and organized exit strategy is a must. A Valuation by our Value Management Solutions Group (VMSG) will help your client develop the plan & Management Services (M/S) will help them implement it.

Paul J. Rauseo - Managing Director

Determination can either be inherent, or it can be fueled by a strong conviction and belief in oneself and one’s product or service. Quite often employees who are not determined to succeed fail due to lack of conviction in himself or herself or our service.

When you know you have something of value you challenge objections, excuses and reasons for deferring decision or not buying. If your method of conveying this value fails, you simply try another angle instead of giving up. This factor, in and of itself guarantees success.

One reason that determination is often lacking is that you see your situation through the wrong lens: YOUR OWN. Top Producers focus on the client’s or prospect’s reasons for running a project or buying a survey, not on their own reason.

When YOU take the time to really understand the client’s/prospect’s situation and goes beyond the basic needs of the client/prospect you begin to see the big picture and how your solution actually removes obstacles that have been and could continue to impede the client’s/prospect’s ability to fulfill their real wants.

When a client/prospect sees the high level of YOUR determination they too begin to see how much you believe in your vision. The Top Producer conveys their desire to help their client/prospect overcome their obstacles in order to help them reach their goals.

Personal Growth Exercise:

• Do I believe I can make a difference on every client’s/prospect’s business?
• Do I believe in what I speak of?
• Do I really think that George S. May International Company can help a client?
• Do I believe that the client/prospect is better off with me instead of without me?
• Do I really understand what the client/prospect wants or have I not really practiced active listening?
• Am I front-minded about the hesitation of every client/prospect to fix their businesses?
• Do I believe that I have what it takes to help a client/prospect overcome THEIR obstacles in order to help them reach THEIR goals?

Practice makes perfect as you embark on the journey of personal growth with use of the exercise above. You can do it! You are on the George S. May Team!

Most small-business owners
Feels credit relief is critical to their survival, but 60.2 percent don’t think it will come in time. The management consulting firm George S. May International poll of 750 small business owners across the U.S. showed the top three expectations from the new administration as being credit relief (35.1 percent), affordable health care for employees (32.6 percent) and tax rebates or incentive (32.3 percent). In addition to late credit relief, 53.7 percent of respondents believe health care costs will rise in 2009, while 29.6 percent said health care costs will stay the same, and 16.7 percent believe costs will decrease.

Despite the slowing economy, U.S. Internet advertising revenue rose in the third quarter, according to an analysis released Thursday. The report from the Interactive Advertising Bureau and PricewaterhouseCoopers LLP said that online advertising revenue totaled almost $5.9 billion in the third quarter, up 11 percent from the same period last year. It marked a 2 percent rise from the second quarter.

New claims for unemployment benefits jumped last week to a 16-year high, providing more evidence of a rapidly weakening job market expected to get even worse next year. The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week, the highest level of claim since July 1992. The four-week average of claims, which smoothes out fluctuation, was even worse; it rose to 506,500, the highest in more than 25 years.

The economy’s health worsened in October as stocks, building permits and consumer expectations all fell. The New York based Conference Board said its monthly forecast of economic activity declined 0.8 percent in October. Over the last seven months, the index declined at a 4.7 percent annual rate, faster than any decline since 2001.

Small and Mid-sized Manufacturers: Flexible and Focused

Saturday, November 01, 2008
By Jonathan Katz

By targeting niche products and staying nimble, small and mid-sized manufacturers prove they can play with the big boys.

One area where many small and mid-sized manufacturers often find themselves lacking is in the process of cost accounting, says Joe Vogel, senior staff executive at small and mid-sized business consulting firm George S May International Co. In some cases, small companies haven’t invested in reporting systems that gather enough data from the shop floor to measure productivity, Vogel says. "When an operator is not doing something that’s directly making parts, you need to know what that is, and not only measure what that is but monitor and manage that cost," he says. When Vogel enters small manufacturing operations he often finds them using low-level accounting software such as QuickBooks to manage their costs. His firm helps clients establish accounting systems that can categorize direct and indirect costs.

Another area that all manufacturers are struggling with is skilled labor. This means small and mid-sized manufacturers will need to be equally innovative with their job recruitment strategies as they are with their marketing tactics. Marlin Steel Wire tries to woo workers with four-day workweeks of 10-hour days, a family-friendly atmosphere — the company bookkeeper is permitted to bring her one-year-old daughter into the office — and bonus programs for plant-floor workers who meet their targets, which have been particularly successful, according to Greenblatt. "I’ve created 20-something entrepreneurs here, and they’re all extremely focused on enriching themselves, and because of that, they’re pumping out a lot of stuff, and we’re extremely productive."

Small businesses reduced to survival mode

By Jeff Harrington, Times Staff Writer
In print: Sunday, December 14, 2008

TAMPA — Like many of the small-business owners crammed into the classroom-sized seminar, Judi Belanger had a problem.

Her Ruskin-based pet-sitting business, This Little One Stayed Home, was handling up to 15 customers a day until business dramatically fell off in September. She’s lucky to pull in one or two new customers a month.

"Money is tight and people aren’t traveling and leaving their pets," Belanger told fellow entrepreneurs during a Small Business Survival Expo last week. Organizers for Hillsborough County’s Small Business Information Center pulled together the expo in less than three weeks and were part-encouraged/part-dismayed when almost 400 people showed up.

"We’ve never done something like this before," Beth Calhoun, an expo coordinator, said before adding in a half-whisper, "Things have never been so bad before."

(more…)

Small businesses reduced to survival mode

By Jeff Harrington, Times Staff Writer
In print: Sunday, December 14, 2008

TAMPA — Like many of the small-business owners crammed into the classroom-sized seminar, Judi Belanger had a problem.

Her Ruskin-based pet-sitting business, This Little One Stayed Home, was handling up to 15 customers a day until business dramatically fell off in September. She’s lucky to pull in one or two new customers a month.

"Money is tight and people aren’t traveling and leaving their pets," Belanger told fellow entrepreneurs during a Small Business Survival Expo last week. Organizers for Hillsborough County’s Small Business Information Center pulled together the expo in less than three weeks and were part-encouraged/part-dismayed when almost 400 people showed up.

"We’ve never done something like this before," Beth Calhoun, an expo coordinator, said before adding in a half-whisper, "Things have never been so bad before."

Amid all the bailout talk for financial and auto giants, the country’s vast and varied pool of small businesses, the proverbial backbone of the economy, is taking it on the chin.

Depressing data abounds: Small-business loans taken out have fallen 38 percent from a year ago; two-thirds of senior loan officers report tighter credit standards on loans to small companies. Small business makes up 90 percent of the retail and restaurant trade, one of the sectors suffering most in the recession.

(more…)

If you’ve read more than a couple of business improvement books, you’ve seen many focus on the same basics. The authors may be different and the examples used may change. However, the basic formula for success that they recommend remains the same.

After having read many of these books, and with a healthy dose of practical experience, I’ve developed my own formula for business success. Here it is, and you don’t even have to spend $20 for the book:

• Develop a great product/service.
• Care more about how it helps the customer/ client than you.
• Sell it in a fiscally responsible manner.

How does our Company, and how do you represent, this formula for business success?

Develop A Great Product/Service
This Company has a great service to offer. More than 50 years ago, George May realized that the many small companies created in the 1940s needed help if they were to survive the change from the war-time economy of World War II to the peace-time economy that followed. In the decades that followed, small and mid-size businesses have become the true economic engine for this country. They represent more than 99 percent of all employer firms, more than half the private gross domestic product, and 60 to 80 percent of net new jobs created annually in the past 10 years. Thousands of new businesses are being created every year, and thousands of others change ownership.

Care More About How It Helps The Customer/Client Than You.

Put the client first, and the rest will follow. How often have you heard the old adage: “People don’t like to be sold, but they love to buy.” In other words, don’t sell them; give them a reason to buy. It is all about the perspective. Are you thinking of yourself - what you need? Or are you thinking of the prospect/client - what that business owner wants and needs? If your words focus too much on yourself or George S. May International Company interests, the prospect/client feels it is all about us. However, if you focus your words and actions on the prospect/client, then that person feels the center of attention. Become “client-centric.”

Sell The Product/Service In A Fiscally Responsible Manner

There are very few business people who complain about price if they believe they are receiving value for their money. Value must always be the key element in any presentation we make to a prospect/client. The value to the owner must be key when making a telemarketing appointment, when selling a Survey Analysis, when presenting the reasons for a Go-Ahead, and when explaining the appropriateness of a MS Recommendation to a client.
We find out what is valuable to the business by remembering the key phrase: “What does the client want?” Value is defined by the prospect/client. The value of our services is obvious to us. Your challenge is to put the value we offer into an understandable value statement that the businessperson understands and accepts. Selling an unnecessary service to a business results is dissatisfaction. Motivating the owner to buy our services results in satisfaction.

The real point is to help your client. If you do that, you’ll win - incidentially! Helping a client in order to win, is not the same as helping a client for its own sake. And your client knows the difference.

George S May Managing Director Paul Rauseo on Fox Business