View PDF

During the last 18 months, our economy experienced a series of events which few thought were possible -- mega banks and insurance company failures; credit crises; mass layoffs; government bailouts; real estate markets drying up; freezing of credit. While the free fall has slowed, we have not actually hit the bottom as of yet, and most would agree that 2010 will arrive before the economy is truly back on the upswing.

The recession has forced businesses to reevaluate their priorities on many levels. Hopefully the steps your company has taken during lean times will put you in a more favorable position as the economy recovers, from a competitive standpoint.

Now that the rate of contraction is slowing, many people are talking as if the economy “hitting bottom” is a good thing! The only good thing about the bottom is that we have stopped falling. We still have a long recovery ahead of us and in order to survive and maybe thrive over the next several years, your company is going have to keep the disciplines that got you through the worst of this recession – and try to take advantage of opportunities that could present themselves.

Discipline #1: Preserving your cash
If you have preserved your cash and you have processes and procedures in place that will help you maximize it, then this is your biggest single advantage. Those processes should include:

Make sure receivables are current – maintain the discipline of keeping customers current on paying you and monitor their credit closely.

Monitor your inventories and keep them at a low enough level so that no excess cash is tied up there. Keep evaluating your products. Do you know which ones are important to your business going forward? Identify items that are not profitable. You may have kept some products during very good times, but if they are unable to hold their weight in future, get rid of them. Better yet – sell them!

Where to invest your cash? Remember that safety needs to trump return – so know your capacity for risk. If we have learned nothing else, we know that the concept of ‘enhanced returns’ is inevitably linked with heightened risk. Ensure that you know what those risks are and whether you are willing to take on those risks for the sake of increased return.

Opportunity #1: Facilities
If your cash flow is secure, do your homework and consider buying land or a building, or renegotiating a lease. There is still a great softness in the commercial real estate market, so now could be a good time to secure a favorable agreement with a landlord.

Discipline #2: Keep your cost and spending controls in place
Get everyone involved with looking for ways to reduce costs and save money. All employees now understand that this can save someone’s job!

Opportunity #2: Renegotiate vendor contracts
Now may be a great time to lock in better terms. Your commitment to continue doing business with your suppliers may help you get better pricing and more favorable payment terms.

Discipline #3: Manage and monitor your vendors
Make sure you understand their financial health; do you have a replacement vendor in mind should your primary vendor go out of business? Not having a Plan B can end up hurting your production timeline, and potentially your sales.

Opportunity #3: Develop more robust budgeting and forecasting plans
Develop plans using information that accurately reflects your future profitability expectations and your ability to generate cash. If there are variances on a weekly/monthly basis, make sure you know why. Be skeptical of negative AND positive variances.

With those tools, do the stress test. You must think the unthinkable in planning your test – just look at our recent economic history! Once you complete the stress test, you can then begin to build an action plan if those things happen.

Discipline #4: Manage with empathy and keep a watchful eye
Be mindful of the fact that the recession has presented harsh realities at the individual level for many people. Their personal investments are down, jobs lost, benefits lost and with that reality comes the opportunity for good people to make bad decisions. Keep your eyes open to the possibility of employee fraud. Sometimes the best employees make bad decisions when there is a motivation, a need, and an opportunity.

Do a full assessment of internal controls and make sure goods and services are not being given away. Have a healthy skepticism if employees give you answers for losses that don't sound right.

This is a particularly challenging time for managers to keep their people motivated; wanting to pull themselves through the tough times together. Be mindful of keeping morale intact, so that everyone can share in the rewards of the turnaround in the days ahead.

Opportunity #4: Growing through acquisitions
If you’ve been able to keep your company financially sound, you may be able to acquire one of your weaker competitors. Valuations of businesses are low and bankers and/or investors in a weak or troubled company could be motivated sellers looking to cut their losses.

With all of the talk and speculation about the economy reaching bottom, it sometimes fosters a false optimism. The bottom can be long and can be rough. Economists say it could possibly take another five years before we start to see a robust growth rate in the current economy. Therefore, it is imperative that you keep the disciplines that have sustained you thus far, and now more than ever, continue to stay focused on these disciplines so when the right opportunities present themselves you can take advantage of them. That is how you can position your company to be successful at the bottom and when the economy rebounds!