• High prices on raw materials - The price of steel is up 46%. Lumber is up 25%. And cement is just plain hard to find.
  
  What's the problem? A construction boom in Asia is driving up the price of raw building materials.
  
  Builders and manufacturers will pass on higher costs to their customers if they can. If they can't -- because of government contracts or other price guarantees -- they'll look to join associations for joint buying power.



• Logistical problems resulting in long lead times - Just-in-time delivery is being sorely tested by the limits of a stretched global distribution network.

  "If you're waiting for anything offshore, the ships in Long Beach are so backed up you can walk to China on them," says Jack Stack of SRC Holdings, a manufacturer in Springfield, Mo.

  Look for more capital and inventory to be tied up in warehouses. Small businesses, check your credit lines! You may need the liquidity.



• Benefits driving up labor costs - Double-digit increases in health insurance premiums are, unfortunately, a given these days. Providing health insurance for employees despite the high premiums will be a challenge.
  
  Another challenge will involve reworking benefits plans for the sandwich generation (those caring for children and aging parents). This will heat up as the baby boom generation reaches its golden years.



• Struggling state economies - Cuts in state budgets have shifted the burden of worker training and other programs on businesses.
  
  Florida, home to a large number of entrepreneurs, is still recovering from the multiple hurricanes of 2004. In California, with its large concentration of entrepreneurs, Governor Schwarzenegger is engaged in reforming laws such as workers compensation.

  "The jury is still out," says Jack Kyser, of the Los Angeles County Economic Development Corp., "but the small-business community feels that they have a friend in Sacramento."

• The return of early-stage deals - Venture capital investments are likely to increase in 2005. Businesses in Silicon Valley and Boston will have the edge (no news there!). The money will be doled out in smaller deals and businesses will have to prove themselves before getting more.

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