The Sky Is Not Falling

It’s a different ball game in Dubai. When I was there just a year ago, the sky was the limit and, in fact, most new buildings seemed to be going in that direction. “Build it and they will come,” was the byword.

Not so, this year. Once again visiting my son Chuck, I was struck last week by the empty shells: twenty newly-completed high-end (purchase price $800-1,200/s.f.) high-rise (25-35 floors) residences in Jumeirah Beach which, as indicated by the number of lighted windows in the evening, were certainly less than 20% occupied.

Along the famous ” Palm ,” the man- made peninsula for high-end living, the pace of construction has slowed. Though most of the $300 billion in property projects in the Emirate are still under development, there is a distinct Las Vegas “feel” to the place – the Monument to Excess is beginning to prove excessive.

Dubai lacks significant oil resources: its total governmental revenues were just $5.4 billion in 2006. Though it is the trading center of the U.A.E. – indeed, of the Middle East – Dubai is now said to be negotiating with its fellow (oil- rich) emirate, Abu Dhabi, for bail-out capital. The decision has been made to delay the second Palm and scratch the third. The Burj Dubai has passed 160 stories en route to 200+ but with annual office rents (rent!!) in the Tower reportedly pegged at $4,000/s.f., the business world will not beat a path to their elevators.

You read it here first – with oil hovering at $60/bbl., the falcons will soon be coming home with empty talons for the Dubai Emiratis.

But it’s still a great place to visit, even if their financial strategy is out of control!

Not so, my small company clients, whose 2009 financial strategies are in every case (knock on wood) under control. Here are a few of the things we’ve been talking about this week as we consider budgeting for 2009:

  1. Get out there and visit your customers. You, Mr./Ms. President, need to know, first-hand, what’s in the pipeline and how your best customers are viewing the world before you commit to a revenue target.
  1. Identify your losers, and get rid of them. In most cases, you don’t need sophisticated analysis to figure out which of your products and services are costing you money. Start by analyzing “value added per direct labor hour” and see what that tells you.
  1. Analyze your work force, as well. Unemployment is heading toward 10%. There will be good people out there looking, and perhaps willing to work for less than you’re currently paying for marginal performers. One client has decided to substitute bonuses for wage increases, keeping his pay scale intact in expectation of a market adjustment.
  1. Get your managers into the (General Ledger) details. Yes, it smacks of accounting and that makes them twitchy, but there’s a lot they can learn from reviewing, line by line, what they spent last year. Then ask them to justify every one of those expenses before you commit for 2009.
  1. Establish a travel expense policy – not just guidelines. Discuss the goals of each trip, submitted in writing. Enforce less expensive advance purchases. Encourage Saturday overnights to reduce air fares (and maybe share the savings). Assign one person to become the expert on travel deals and to spread the word. Limit meal expense to $50/day ($60 in major cities) – employees don’t need to get fat on your buck.
  1. Takeanother look at setting up a Section 125 Cafeteria Plan to put your employees’ benefits on a pre-tax basis. Coupled with a self-funded high deductible, you may realize big first-year savings, especially in health care.
  1. Shop around, and negotiate-negotiate-negotiate prices and terms, especially on major equipment purchases. Investigate “customer managed inventory” as MSC Industrial Supply does it, with barcodes, scanners, and a direct connection to your on-line shopping cart.
  1. Send a message that you’re serious about expense control by reviewing the petty cash reconciliation before you sign the check to replenish it. Stop reimbursing employee lunches. Ask people to contribute 25 cents to their morning cup of coffee.
  1. Set an example with all of this, and let your staff know that it’s a different ball game this year. They’re tightening their belts at home; they have to do the same thing at work. It’s a useful lesson to relearn every once in a while.
  1. Finally, communicate regularly with your people. Even Tom Brady doesn’t make up new plays at the line of scrimmage (especially not this year!). Huddle up. Give them the signals. In a difficult economy, everyone is looking for leadership and reassurance.

Planning and execution will be more important than ever in the coming year. Get your whole team involved in generating ideas. It’s not going to be business as usual in 2009. If you think that, then don’t be surprised if the sky does fall – on you.

Alligator Bites

Howe’s Bayou is not a travel guide, but given that the following appeared in the Financial Times (of London) just a day after we drove past the Atlantis Hotel at the tip (top?) of the Palm last Friday night (and given that I’m still jet-lagged), I’m excusing its inclusion as an example of a contemporary Dubai “monument”:

“It opened as recently as late September; it is built at the end of the first (and so far only completed) Dubai Palm, a piece of reclaimed land designed to resemble a palm tree; it has more than 1,500 rooms…

“…it has a mammoth aquarium built into the centre of its east wing. Add to that the fact that the weather in Dubai rarely disappoints [if you don’t mind sauna-like conditions from June through September], and you can see why their presidential suite has been booked solid since opening.

“Stretching over three floors, the Neptune Suite welcomes guests with a grand foyer leading down a sweeping staircase into an elegant aquatic-themed dining and living area, with butler’s pantry. Then, of course, there are the sumptuous bed and bathrooms with their underwater views. If guests are unable to tear themselves away from watching the 65,000 marine animals, a 24-hour dedicated private butler is available to serve refreshments…”

A bargain at $15,000/night.

Draining the Swamp

“The FDIC today announced that it has extended the opt-out deadline for participation in its Temporary Liquidity Guarantee Program to December 5, 2008. Any eligible entity [e.g. bank] that opts out of the program on or before December 5, 2008 will not pay any assessment under the Program.”

“Unlimited deposit insurance coverage is available through December 31, 2009 for non-interest bearing transaction accounts at institutions participating in the Program.”

– from the FDIC website

If your bank participates, all funds in non-interest bearing deposit accounts (i.e., most corporate operating accounts) are guaranteed through 2009. For your peace of mind, it may be worth knowing whether or not your bank is participating and your funds are protected.