People from all over the Small Business Community have been reaching out to us asking for some help in interpreting the news of the last week. I love that y’all trust Ascend Financials on money stuff; you made me blush with delight! Alright all you savvy business owners, let’s dig in.

The hoopla that went down around Washington DC will affect you both directly and indirectly. Here are the highlights in plain English:

· The Debt Deal: Congress and the President reached an agreement to RAISE the debt ceiling so that we didn’t default on our debt. (Need the 5 min crash course on the debt ceiling? Click here) This allows the government to borrow more money to make minimum payments on past loans. Double ugh.

· Strings Attached: The Debt Deal has strings attached. The government promises that it will cut spending over 10 years—the spending cuts will be will be felt in places that are considered “negotiable” (like Defense and Education) because that no politician is willing to go elbow deep in REFORM in the months leading up to an election year.

· Time for Vacation: Once the Debt Deal was brokered, and a congressional committee was appointed to figure out how exactly to exercise the Plan, they decided they needed a vacation. Off they went on “recess” against the express wishes of the President. Needless to say, the President isn’t keen on their choice and has asked them to come back to Washington.

· Kicked While Down: Days later, the sovereign USA got kicked in the gut while it was down: credit rating hit and the stock markets fell.

· AA+ Isn’t Good? Even though we met our deadline to pay the creditors, the rating agencies downgraded USA’s credit score. (more on why below) The credit score for government and business is based on how many big A’s you have next to your name. AAA is the best.

· Before You Say Who Cares: A worse credit score means the government will need more money for the same bills! That affects everything. Remember, your Income is the collateral the Government put up to borrow (more) money.

· The Double Whammy: The GDP (gross domestic product) and Unemployment/Jobs Report came out the day after the Debt Deal was brokered. It looked and smelled rotten. So Wall Street freaked out and dropped 10.8% late last week! Imagine 10.8% of the money in your checking account just disappearing. That’s exactly what happened to most of our IRAs and investments.

Holy Stinky Election Year

Look, there’s no pretty way to say it. As the world watched our government play politics until 11:59p something became very clear: The United States of America cannot make a decision to save its economic life… especially not with the 2012 elections just around the corner. Republicans are standing firm on not raising taxes, so they won’t vote on anything that smells of tax increase. Democrats are standing firmly on their commitment to not touching Social Security, Medicare as a way to decrease government spending. Impasse.

Be careful dear entrepreneur that you don’t bury your head in the sand, or throw up your hands in the air. Nothing is more important to our economy than the work you do in your business. You still have a fantastic business model to work with—so do the best you can with what you’ve got. Don’t wait for things to happen around you or for reform, do it yourself. You are in control of your Income and Expenses. Nobody is going to do it for you. And with high levels of unemployment, many people need leaders they can follow into starting their own business. Are you that leader?

If you want your voice heard in Washington use your liberty to make phone calls. Tell your Senators and Congressmen to go back to work and to courageously embrace reform. Tell them how you feel about the things you learned here today. If you have investments (or your spouse does) that are in the stock market, call your financial advisor with questions and ask if changes need to be done to your portfolio.

Most of all be diligent, work hard, be a good steward of your finances, and keep on keeping on!

LeAnne

PS: For the record I’m not an economist… I’m a professional financial advisor who just happens to own Ascend Financials, which helps the small business professionals keep more of what they makes. Sign up for Prosperity at Spendonpurpose.com

** writtten July 21st, 2011

I was meeting with a successful Executive Sales Director; she and I were discussing her investments and changes I was recommending. She said, “LeAnne, can you explain to me what’s going on with this whole Debt Ceiling thing? My brother was telling me to pull all my money out of the stock market before August 2nd. I don’t understand how any of this applies to me, or my business. Help!”

You’re a smart business person. So it behooves you to learn just a bit about this whole debt ceiling thing. Here are the basics (in real English):

1. The Government’s Line of Credit -Government asks for credit by issuing bonds (named Treasuries) and Investors buy them up like crazy. The bond buyer is actually “loaning” money to the Government, and it contractually agrees to pay interest on debt, and pay the principal back in x # of years.

2. The Government’s Credit Score - I know it’s hard to imagine, but even the US Government has a credit score. Just like you and me, if they fall behind in payments or can’t pay, then their credit score is affected.

3. The Ceiling is a Self Imposed Credit Limit - In simplest terms, the “Ceiling” in question is a credit limit the government has imposed on itself.

4. What’s the Big Deal about August 2nd? August 2^nd is the day that the US Treasury says it officially doesn’t have enough money to make minimum payments on its Bonds. Yikes! So what they’re trying to do is borrow more money so they can make loan payments. Think of it as using one credit card to make the minimum payment on another.

5. Political Tug of War: The House has a Republican majority, and they’re demanding that if the credit limit is raised, that it be tied to budget cuts. Additionally Republicans are demanding a Constitutional amendment that requires the Government to operate with a balanced budget. The President and Senate are saying no way, because such budget cuts would likely hurt Social Security and Medicare. Everyone knows that messing with Social Security and Medicare is essentially suicide for the Official.

6. Your Income, Their Collateral Regardless of whether you think like the House or President, here are the facts! The Government’s ability to borrow money is backed by their sovereign power to TAX! In other words: your income, and the government’s power to tax it, is the collateral they use to secure loans. (Now I have your attention, right?)

Personally, I don’t believe that Lawmakers are willing to commit political suicide, and I do think they’ll play this out till the last moment. I think the Debt Ceiling will be raised, I think the Government is going to collateralize more of your income (and your grandchildren’s) to take on more loans. Bottom line, it affects your business because it affects the overall economy.

I think the biggest risk for your small business is taxation risk, which affects the amount of money that goes home to your family for the same amount of work and product sold. Additionally, the true risk for every American family and business is an “indirect tax” by an increase on interest rates across the board.

What should you do? You should stay focused. Make audacious goals for the rest of this year. Work your business full circle. Run it cash flow positive. Listen to your leadership on how to build your business deep and wide. Manage your money in Prosperity. Take a profit, always hire a CPA, and don’t panic. Pick up the phone and call your elected leaders (whether you like them or not) and tell them what you think they should do with your new knowledge.

At your Service,

LeAnne and the Ascend Financials Team

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