Business looks ahead cautiously

- November 24, 2001 - Business

By MIKE PETTAPIECE
The Hamilton Spectator

The fear is starting to lift. Now the hesitation takes hold.

An uneasy caution has gripped business and industry in the wake of the terrorist attacks of September 11.

Companies are treading more confidently two months later. But many are also hoping, fingers crossed, that the current downturn is only a short, if sharp, recession.

"We have a hold mentality and (it's) been there a good eight to 10 months," said Doug Robbins, a Hamilton mergers and acquisitions specialist for owner-occupied businesses.

"The fear is starting to dissipate. I've got clients whose order books have just started to open up in the last two to three weeks."

Other Hamilton-area business experts confirm what Robbins is seeing. People are sitting on their cash, even renegotiating their lines of credit, as they hang in for an anticipated turnaround.

Bankruptcy trustee Paul Graci, at Taylor Leibow, is seeing a prevailing atmosphere of "optimism with caution."

He tells clients about the lessons of past recessions: if people can endure, the survivors will be "extremely strong and (become) extremely profitable."

Some people don't survive. In the first nine months of the year, 128 business bankruptcies were recorded in the Hamilton-Burlington area. But here's the interesting part: that number is actually three fewer than the total to the end of September last year.

There are other insolvency classes, including one called proposals in bankruptcy. Proposals offer a kind of short-term protection from creditors while a business restructures and works out payment deals or an ordinary consumer tries to pay his bills.

Total proposals are up, but only just - 397 this year, compared to 367 last year.

"What I'm hearing from the staff is that they're really busy and the volume is quite heavy," says Donna McNabb, at the Hamilton office of the superintendent in bankruptcy.

She said some people want to know possible courses of action: "I'm having difficulty. I don't know what to do. What are my options?"

Graci and others say the anxiety created by the terrorist attacks of Sept. 11 in the United States is waning.

It is true the impact of the attacks has devastated a few industries. Airlines and airline-dependent sectors such as travel and hospitality are the most obvious.

The signs of that 'stuff' are everywhere. They range from insolvencies to companies that are stretching out bill payments.

Almost everywhere, businesses have chopped their discretionary spending. They travel less, they avoid trade show visits and they trim ad purchases. Company golf tournaments for key accounts have hit a money hazard.

Businesses have also put the squeeze for now on capital projects, such as an addition, or on equipment buying.

A universal move has been to stretch out accounts payable -- stalling the bills anywhere from two months to four months. That sets up a vicious cycle as suppliers and customers do the same.

A move by one business impacts on others. The Hamilton chamber has seen its flyer-insert sales "remarkably off" from past years, said Dolbec. The flyers--containing ads of member-businesses--go out in the chamber's monthly mailings. Now, many members just don't advertise.

Graci said he has recently been getting anxious calls from business owners who want to understand the impacts of certain insolvency steps. They are asking what-if questions now instead of "waiting until the 11th hour."

What happens, for example, if they declare bankruptcy. Or what if they take more moderate action, such as drafting a proposal under the Bankruptcy Act.

A proposal offers short-term protection to keep a business going. It keeps creditors, including banks, at bay for a while. The freeze helps in working out new debt terms or in reorganizing business affairs.

John Doma, at accounting firm Scott Batenchuk and Co. in Burlington, says his clients are trying to keep their cash reserves up even as their volumes of work go down.

Some well-managed small businesses are actually doing al right. One of Doma's clients, a Mississauga stamping plant, has gained business formerly done by Maksteel, a steel service centre now under bankruptcy-court protection.

Ancaster accountant Barry Brownlow--with clients on both sides of the border--says many customers believe the downturn "will be short run." Even so, they are being extra hesitant.

"They may have two budgets in process: a regular budget and a just-in-case budget. That's very popular and a very prudent strategy, just in case things get a lot worse. It's like having an extra container of gas in the car."

---

Some people don't survive. In the first nine months of
the year, 128 business bankruptcies were recorded in
the Hamilton-Burlington area. But here's the interesting part:
that number is actually three fewer than the total
to the end of September last year.

---

Companies that depend on easy and quick access to the border, such as just-in-time auto industry firms, are also hurting. Border delays mean inventory piles up.

But business experts say it is too easy to scapegoat Sept. 11 as the factor behind all business collapses, losses and layoffs.

"It's a nice excuse -- where nobody is really the bad guy except for the real bad guys," says Graci.

At the Hamilton Chamber of Commerce, chief executive John Dolbec says many people seem to be "using Sept. 11 as a fall guy for stuff that was happening anyway."

He knows people who have gone to their bank to reorganize their financing, taking advantage of lower rates.

At the Burlington Chamber of Commerce, the economic downturn took down the chamber's award-winning magazine.

Review magazine, put out by principals unrelated to the chamber, is gone less than two years after it began.

The full-colour magazine--costly to produce and highly dependent on monthly ad revenues--will be replaced some time next year by a far slimmer version.

The monthly magazine took top spot earlier this year in a U.S.-based competition of community and business publications.

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