Recession-Proof Your Business

Is the country already in a recession? Headed for one? Or will we avoid a full-scale recession? While economists debate these points, one thing is clear: Business owners and executives are worried about the state of the economy and many are feeling the pain of a slowdown..

Recession Basics     Q. What exactly is a recession and are we in one?     A. Technically, a recession is described as a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters, which hasn't happened yet. Interestingly, we don't typically know we are in a recession until well after it has started or until it is over.     Some experts, including those at the National Bureau of Economic Research (NBER), determine that a recession has occurred by looking at GDP, as well as other economic measures.     Despite these technical definitions, many people describe a recession as a period of general economic decline and they believe we are already there.     For example, a new survey done by Duke University found that 54 percent of company CFOs think the United States is already in a recession and they don't expect it to end until next year.     Q. When was the last recession and how long does one last?     A. According to the NBER, the last U.S. recession occurred from March 2001 to November 2001.     That eight-month period was shorter than the average duration of recessions since World War II. The postwar average, the NBER states, excluding the 2001 recession, is eleven months.     Prior to that, a recession did not occur for nearly ten years -- in 1990 to 1991.     Keep in mind that recessions are a natural part of the economic cycle. We historically face one every decade or so.     Bottom line: In the future, we may find the NBER reporting that this is the quarter that a recession began. But for individual households and businesses, it really doesn't matter whether we are technically in a recession or just in an economic slowdown, slump, downturn or something else. They can all have the same painful effects.

The seeds of business success are sown during difficult times

Job losses, credit troubles, a bleak housing market, decreased consumer spending, high energy costs and record home foreclosures are being felt across the country. Many businesses are facing challenging times. But it is possible to look at this period as a chance to find new profit opportunities that make your business more efficient.

For example, an economic slowdown can provide the chance to streamline by looking for operations to outsource. Here are seven basic steps to consider taking in an economic slowdown. Their degree of effectiveness obviously depends on the state of your organization now, the area of the country where you are located, and the industry in which you operate:

1.

Don't stop marketing. When cutting expenses, it may be tempting to stop spending on marketing and advertising. But that can cause a further downward spiral when new customers aren't coming in. If you have to cut back on marketing, look for less expensive ways to keep your name out.

Focus on potential customers that fit your vision of a perfect customer; in other words, those who generate financial results. Create a marketing plan that identifies your niche and attracts the customers you want. This will generate greater sales at less cost and with a more meaningful bottom line impact.

2.

Crunch the numbers and look at your organization from every angle. Your accounting firm can examine your operations and find opportunities to control spending, increase productivity, decrease waste, better manage assets, take advantage of tax breaks, improve cash flow and enhance your bottom line.

You need to logically look at your company's balance sheet and structure. Determine the options available in certain situations and come up with realistic plans of action.

Put a particular emphasis on practices that need improvement; products that need to be eliminated or consolidated, and projects that are urgent, compared with those that can be put on the back burner to help conserve cash.

Negative economic conditions can provide opportunities to push through changes to make your business more efficient and to allow management to sharpen its focus on operating statistics that may not have received adequate attention.

3.

Focus on your business plan. Review your company's mission and core competencies. Do the actions you are considering make sense in the long term or are they simply panic reactions? Stopping purchases and tightening up credit terms could cause you to lose customer and supplier loyalty, as well as open the way for competitors to grab some of your business.

4.

Forge alliances. Investment capital may become scarce, so pooling strengths with other businesses may give parties:

• A competitive edge. 
• A chance to enter new markets.
• An opportunity to gain economies of scale and reach new customers.

Through business arrangements with other businesses, you may find added investment capital or expertise your company has been missing. Downturns can help your business avoid plant investments by taking advantage of windfalls such as the joint use of facilities that have been overbuilt or distribution channel sharing.

5.

Optimize capital.  Having cash helps ensure continuity and the ability to seize opportunities. Attention to working capital becomes more important during a slowdown and may force your company to pressure customers for timely payments, to restrict inventory sales and to delay payments to suppliers.

Stay on top of invoices and conduct credit checks on new customers. During rough times, even a few delinquent customers can wreak havoc.

But be careful: Customers denied credit may buy less and your company may be left with inventory on its books rather than higher value sales and receivables. If possible, help customers and suppliers with temporary problems stemming from the economy. That can help protect your company from losing business to competitors.

There may even be opportunities to gain new customers who have received poor service from your competitors.

During a slowdown, your company can also become more creative to raise cash. For example, you may want to dispose of some operations, sell or license intellectual property, or restructure debt. If your company has international operations, you may find untapped funds available there to help finance critical projects.

6.

Look for fire sales.  The economic downturn can cause hard times for some of your competitors and may even force them out of business. This opens opportunities to make an acquisition and take over assets at bargain prices, including the customer base and experienced staff of another business. This will ultimately put your company in a stronger position when the economy eventually recovers.

7.

Keep your employees in mind. In a downturn, many companies initiate across-the-board layoffs. But that can compromise long-term objectives and successes by weakening the human resources needed to sustain growth and stability. Get rid of employees who don't contribute and keep an open dialogue with the rest of your staff. Economic uncertainty breeds worries among managers and employees about what will happen to the business and, ultimately, to them. Address the issue directly. Provide the answers you can and focus the team on the work that needs to be done to remain a viable business rather than worrying about the uncertain future.

Advice: Downturns eventually end and they rarely follow the course that observers predict. Consider alternative scenarios and be prepared. And remember that business lost in traditional markets may be more than compensated for in other markets. Some business people find that recessions provide some of the greatest opportunities in their lifetimes.