What Does $1,400 Mean?
Written by CMG News Contributor, Doug Carleton
It means anywhere from approximately $2,800 to $4,200. Think of a rock thrown into a pond. It creates ripples out in concentric circles. This is what happens when that $1 rock is thrown into the economic pond. It generates $2 to $3 in economic activity. So what can that mean for your business? FORGET YOUR POLITICS FOR A MINUTE. Think purely in terms of economic impact analysis. Money spent in the economy generates more money. Say you spend $1 on a cup of coffee (a non-existent fantasy but good for illustrative purposes). $1 goes to the owner of the coffee shop; $.02 is paid in various taxes; $.50 is paid to the barista; $.10 is paid to the landlord; $.27 is paid to the supplier; $.05 is paid for things like utilities, advertising, insurance, etc. and $.06 is paid in interest to the bank that gave you the loan to up-fit your space before you moved in. Each of these monies paid to others creates ripples from that $1 rock and generates more spending. Let’s look a little closer at how it might affect your business.
The barista buys food; pays rent; buys clothes. The grocer buys the products from a distributor that it will sell to the barista. The distributor buys the lettuce from the farmer who buys fertilizer and on and on.
The taxes paid to the various government agencies buy things like fire trucks, firemen wages, garbage trucks, and the personnel to collect your trash, all of whom turn around and spend it on other goods and services.
The landlord pays interest to the bank that made the loan to buy the real estate and pays for the upkeep of the property.
So here you have a grossly oversimplified kindergarten description of economic impact analysis and the ripple effect. That rock thrown into the pond created income for many other people – maybe $2 to $3 more. So the point of this exercise is where does your business appear in the ripples? Instead of that $1 (the $1,400) going to just one of your potential customers who would buy from you, parts of it will flow out to other potential customers who may buy from you as well. So if you are close enough to where the rock went in, will you be ready? Supply chains have been seriously interrupted. Furniture, which used to take about three months from manufacture to delivery, is now sometimes taking up to nine months. Dozens of large container ships – with products primarily from China, can’t even get into the anchorages off of places like the Los Angeles Harbor (Los Angeles is the biggest port in the US) because of the shortages of workers at the port and drivers to take the containers away because of the Covid. Do you sell anything that may be floating around out there that you won’t be able to get soon enough? Consider those things.
The piñata broke. Don’t miss out on the exploding dollars. Make sure you can ride the ripples before they die away.
This blog entry is a slightly edited excerpt from Doug Carleton's 'The Daily Life Of A Small Business Owner' series. Doug was a mentor with SCORE, Startup Virginia, and Lighthouse Labs, and has 25+ years of experience in small business finance including 12 years in SBA lending. To contact Doug directly, please email him at firstname.lastname@example.org.