“Recession? Entrepreneurs barely noticed” – Why?

There was an interesting article published this week on Advisor.ca.

It was titled:   
Recession? Entrepreneurs barely noticed

The first paragraph states:

“You may have noticed that your small business-owner clients have remained upbeat during the recession — and you probably weren't alone. It turns out that less than half of small businesses felt a negative impact from the downturn, according to a poll by RBC.”

So, the question I ask myself is, how is it possible that so many of these entrepreneurs did not feel a negative impact from the downturn?  I think the answer lies in two important aspects of being an entrepreneur/business owner:

• Entrepreneurs/business owners have most of their wealth tied up in their business.  Accordingly, they are focused on, and determine their financial health based on the revenues, costs and profits of the business.  They are NOT focused on the daily valuation of their business.  In other words, while the entrepreneur/business owner may have been focusing on a 5% revenue increase or decline, his non-business owning, highly diversified fund owning neighbor was probably focused on a 40-50% drop in public markets.
• Entrepreneurs/business owners understand their business and are able to adapt to changing market conditions – “reviewing their business plans and assessing their financing options”.  This would mean that they have a sense of “understanding” and “control”.  On the contrary, their broad based fund owning neighbor has the feeling of being a “victim”. 

Knowing your clients and their risk tolerance are cornerstones of the financial advisory profession.  Understanding these attributes of clients who are/were entrepreneurs and business owners is important to serving them well and should, in my opinion, be given serious consideration in designing optimal investment portfolios for these clients.

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During the week, the following news items were of relevance to some of the companies we follow and in which we may have an economic interest:

• Infosys Technologies Limited results for its 2nd quarter ended September 30, 2010:
• Revenue increased 12% over the prior quarter and 24% over the prior year;
• Earnings Per Share increased 17% over the prior quarter and 13% over the prior year;
• Management’s guidance for full year ending March 31, 2011 was increased from “112.21-116.73” to “115.07-117.07”which would represent year-over-year earnings growth of 6.4% to 8.2%.

We see this growth as indicative of the unique strengths of the company combined with a global economic recovery.