Ever asked yourself, when this recession is over, will I be recession proof for the next downturn?
If you haven’t asked yourself that question yet and you are one of the surviving businesses poised to leap forward when the economy finally recovers, ask yourself these 7 questions. Then follow them, practice them regularly and test your adherence to them periodically. If you do this you will be well on your way to never worrying about economic downturns again. Call or email me with any questions or concerns.
80% of new companies fail in their first year, 96% of those started a year prior also fail for improperly managing their debt to equity. If you can’t afford a new department and you are above 30% do not take out a loan to do so. Be patient and wait until you have the cash. This leads me into your first point in our 7 point checklist.
1) Manage debt
Make sure to always keep your debt to equity ratio well below 30% (Meaning: Your total debt makes up less than 30% of your cash and equity). This includes your accounts receivable and accounts payable. This will allow your business to remain nimble in turbulent times and allow you to venture out and modify your company’s services and strategies rapidly into less affected markets (i.e. Medical and Software). If you are well beyond 30% and spiraling downward, then you are caught in what is called the Death Spiral and are on the verge of business cardiac arrest. Seek immediate attention before it’s too late.
2) Control expenses
When times are good business spending increases and usually goes unchecked. During the past 5 years, many business owners looked to expand and grow paying no attention to the warning signs of an impending bubble burts. The more prudent strategy has been and always will be to retain 33% of profits every year in the event of an economic downturn. Every business and industry goes through periods of expansion and contraction, which if not properly planned for could be the end of your company. In today’s current economic situation many business are having major “cash flow” issues, which is a clear reminder that good expense control is absolutely essential to sound business practices.
3) Go global
Constantly explore new market opportunities. I can’t emphasize innovation enough. Especially these days when much of our manufacturing is sent to more affordable locations across the globe we yet retain an advantage in IP Designs and Services. Keeping up with new innovations is tantamount to our survival as a business community. Apple has mastered the art of innovation and at staying ahead of pace with emerging world trends. With an ever vigilant eye on world markets you will be able to use your free cash to create a hedged position in another area of the world. Limiting your operation to domestic markets keeps you susceptible to that market’s economic patterns. Working in another country, or simply being an expert about another culture or language, will work to your advantage during a recession. Go global.
4) Go Green
With the advances in green technology and environmentally conscious methods, often times, investing a little bit today into recyclable supplies and equipment preserving organic agents will save you a great deal of money in the long run. Develop “Green” skills. If your company can offer an environmentally sound service you will be in demand. Keep in mind though that the “Green” service is still a niche market and will require large expenditures in innovation. Though it is proven over the long-term that the initial investment in a “Green” product or service returns plus reward in 3 to 5 years. Just in time for another economic downturn.
5) Grow organically
If you have an idea for a new venture or expansion project, don’t automatically jump to an “Investor” or “Bank Partner.” This is an easy way to sink your company into more debt. After all, investors are in it to make money too, not just grant you unlimited monetary gifts. Also, as we have all seen, banks can control a lot of people’s future, don’t let a bank have that much control over your business’s future. You need to be in control of the life-blood of your company, the money. Not an investor. If you cannot afford an all important expansion effort, wait. Another alternative is to raise your prices. Higher process in many cases will increase the perceived value of the services you or your company is offering. The catch is, you have to deliver. Once you tarnish your reputation, there is no getting it back to tip top shape unless you move or do business under a different name, but then the cat will come out of the bag eventually.
6) DO NOT commingle business accounts with personal obligations
Too many times business owners take a little extra money out of their businesses to boost themselves personally. Don’t do that! Know your working capital, know what you need to keep your doors open, write down in large, unmistakable numbers, the minimum amount of money you need to keep your business operating, then, do not drop below this unless it is a business expense. In which case refer to the new tax laws and look five years back.
7) Invest in cost-cutting technologies whenever possible
Look, the truth is, we’ve been conditioned by mainstream media to believe that investing in new technologies that reduce the labor requirements in our businesses is parallel to sacrilege. This is simply not the case. Yes, temporarily there will be some layoffs with the advance in new technologies, but your improvement and growth as a business will provide ample new opportunities to increase your work force to larger levels than before you switched over to a new technologies. Just think if we never invented agricultural machinery to make farming simpler, our food costs would be extremely high.
Those farmers who lost work upon the introduction of new technology found refuge in other industries and often time furthered their education and became formidable players in another sector. Technology is not bad, it simply makes possible adjustment to a more lucrative future for everyone involved and generations that come after us. Like the “Green” initiatives advised on above, an investment in cost-cutting technologies will make up for themselves in the long run. i.e. teleconference on free internet channels whenever possible.Such services like Skype or NetMeet can significantly reduce your cost of meeting a potential buyer or prospect through gas savings, travel savings, meal savings, etc. A dollar saved today immediately puts cash back into your business for expansion options and international market research.