As some of you may know, I'm a member of a Vistage group here in Charlotte (http://www.vistage.com/). Each quarter Vistage polls its membership (primarily small / midsized privately held companies) on their confidence. I read the survey every quarter and it usually confirms how I'm feeling, yet I've started to wonder about the terms relative and new normal.
In the Q1 2011 Survey the actual CEO confidence index is compiled by the same folks that do the consumer confidence index at the University of Michigan. It shows that the index is doing well. Confidence has doubled since the trough of the recession and is back to almost normal.
I challenge myself on the questions themselves though. If you asked me in 2006 whether or not I believed sales would increase, I would have said 'yes.' I also believe that our sales will increase this year and answered 'yes'. Yet it's not the same resounding 'yes' I had in 2006. So am I as confident or not?
The reason that I think this is relevant is that we, as entrepreneurs, all take risks every day. Every day we make calculated decisions, the effect of which – if they go bad – could put us out of business. General Electric can afford to make a $500m mistake and still make it. If we make the same magnitude mistake (e.g. smaller, but by the same percentage), we might be out of business. When we don't feel as confident in our 'yes' answers it makes the decision making process slower. I think all of us would agree that we're more risk averse and have a new understanding of risk relative to 4 years ago.
So, where's the sunshine in this? I know, accountants are typically pessimistic. I am not a pessimistic accountant. My point in this post is that the data shows that things are improving, albeit slowly. Our peers are confident; it's just a new confident. We're all scarred and we won't forget the last few years anytime soon.
However, let's let the strength of our balance sheet help us in evaluating the risks of hiring a new person. Strong balance sheet, why not go for it? Weak balance sheet, you're probably prudent to hold off and think about it. Let this be our lesson from the recession – our financial statements matter, they are the only qualitative measure of our health. For more on evaluating your overall health see my prior post 25 Scenario Checklist To Identify If Your Business Is In Trouble.