People in the business community are beginning to hear rumblings, grumblings and have seen recent media attention given to the impending doom of an economic slowdown. Following the end of the Great Recession in mid-2009, the U.S. economy has enjoyed growth over the past decade making it the second-longest economic expansion in our nation’s history. Prior to 2008 expansions and contractions ran in intervals of 5 to 8-year cycles, so if history is any indication of future events there is legitimate cause for concern.
While no one can predict the future, a commonsense approach tells us what goes up must come down. So, here are a few ideas on what business owners can do to mitigate the impact of an economic slowdown when it finally arrives:
- Have a Financial Forecast or Budget for 2019 & 2020 and Track to Actuals:
Having a well-thought-out written plan allows for tracking progress and determining if you’re on or off course.Having a clear understanding of direct, selling and administrative costs allows businesses to know what expenses they can cut and where.
- Make Operational Changes While Times Are Still Good:
Close or consolidate unprofitable locations or product lines. If they’re not performing when times are good, it may be time for a change.
Purchase new or refurbished equipment now so you’re set for the next 1 – 3 years.
Do major operational improvements now (systems, equipment, IT) to minimize costs and create flexibility.
- Make Financial Changes While Times Are Still Good:
Clean up and get rid of old or obsolete inventory.
Tighten and/or enforce credit policies.
Ask for an increase in available line of credit, even if it is not needed now.
Accelerate paydown or pay off debt if possible.Build an emergency cash fund.
Establish and monitor KPIs to measure clear targets.
- When to Respond to a Changing Economy:
Set trigger levels that start the execution of a contingency plan.
Communicate plans & expectations with staff.Solicit ideas from staff (cost saving/revenue enhancing).
Convert fixed to variable costs where possible (outsource vs. in-house).
Tighten customer credit policies and step-up AR collections.
- Common Lessons Learned from 2008:
Management waited too long to make changes and ran out of cash.
Most companies could not get small enough fast enough.
Companies did not monitor bank covenant ratios, went into default and their bank called their loan.
Companies overextended on warehouse and office space, could not get concessions from their landlord and were forced to close.
Planning for a downturn is like any contingency planning. It takes time, resources and an interest in being prepared. No one likes the thought of having to make significant cuts in staff or costs. However, it’s much easier to do over a period of time with a plan versus having to make decisions in crisis mode.
We believe it’s very important for businesses to be prepared for an economic slowdown so we are presenting a workshop luncheon on November 13, 2019 called “Preparing for an Economic Slowdown”. We’ll be joined by an Economist who will help us better understand the prediction of a downturn and we’ll provide solid actions steps that businesses can take to reduce the impact and be prepared when it arrives.
So, mark your calendars for November 13th and . . . stay tuned!