|
To continue from html newsletter click here
A discussion about what to do after the recession seems almost futile given the unrelenting torrent of bad economic news. Nevertheless eventually the credit markets will flow once again, consumers will be plagued by pent-up demand and businesses will respond by rebuilding depleted inventories. To this end, business decisions made during the recession will determine the company’s ability to take advantage of growth opportunities once they materialize.
During the economic crisis many company leaders have turned their focus inward, overseeing operations and losing sight of the marketplace. As a result, fundamental changes in the industry, paradigmatic shifts in consumer behavior or competitor innovations may have gone unnoticed. Moreover, the recession has not affected all industries equally nor will the recovery offer parity. Some industries will experience a quick sustained turnaround while others will be vulnerable to growth volatility. Business leaders will need to remain vigilant; preparing their company internally for the next stage while keeping a watchful eye for any signs of recovery.
Reserve cash for reinvestment
With declining sales businesses are quickly burning through cash reserves. Moreover the company’s balance sheet may preclude bank financing and asset based lending will increase the cost of capital, placing additional pressure on already declining margins. As the companies are affected by the recession so are their vendors and suppliers, who going forward may require stricter payment terms or additional deposits. Therefore, when the economy finally improves adequate cash may not be available to finance inventory purchases. Companies who have access to adequate capital will have a competitive advantage in their ability to quickly respond to market demands.
An effective cash flow strategy should include capital to rebuild inventories when the economy recovers. Contact key suppliers and vendors to inquire about any potential account payment changes. If a shortfall is predicted and bank financing is not an option, interview financing companies. Learn their lending criteria and cost of capital in advance, thereby allowing you to build the additional fees into your pricing model. Don’t get caught in a “cash management shortfall” having only planned up to the recovery and not beyond.
Rebuild strained relationships
Many companies have had to make difficult employee decisions including layoffs, reductions in pay and the elimination of bonuses. Albeit employees understand that a reduction in pay is a better option than not having a job, nevertheless employee motivation and productivity levels may have been impacted. When the economy recovers it could be difficult to inspire the employees to go the extra mile prior to receiving previous levels of compensation. Managers will need to find creative ways to motivate an overburdened staff.
To manage cash many companies have had to stretch vendor payables and therefore it may be advantageous for top management to contact key suppliers. Managing the relationship means building and maintaining trust, which will go far when new orders need to be filled on credit.
Research market conditions
Bottom line-your business is not going to improve until either your customers’ business improves or you develop new customers. Now is the time to consider slight modifications to your business model. Can you change your product/service offering to attract a new or different buyer? Can you rebundle or repackage your offerings to sell at a different price point? Some of the best ideas (and companies) have developed out of a need to change the status quo in response to new market conditions.
Moreover, the best ideas originate as solutions to existing problems. Invest time listening to your customers and learn about the challenges they are facing. You will gain inside information about industry trends and may just learn about a problem that your company has the core competencies to solve, which can become a new future revenue stream.
Don’t be preoccupied by economic indicators that predict the end of the recession, as your industry could be well on its way to recovery before such indicators turn positive. Instead look for positive signs developing in your backyard, such as your customer’s businesses are beginning to improve, increased sales inquiries, and a general renewed optimism in your industry.
Watch for complimentary and substitute changes in consumer behavior. If suddenly Wal-Mart’s parking lot is less full and Target’s has increased, perhaps consumers are once again looking for up market prices and offerings. Some behaviors established during the economic crises may become future habits. Do not become blind sighted believing that what was once—will be again.
In order to succeed in today’s Darwinian environment, business leaders need a combination of acumen, intelligence and instinct. Personal relationships with employees, customers and vendors are the company’s core assets, which will be invaluable as companies seek to reestablish growth. While it is true that we have had unprecedented high living, to the likes that we may never see again in our lifetime, that does not mean that tomorrow will not present new opportunities with the renewed excitement and optimism that has been the foundation of the American entrepreneur.
________________________________________________________________
AROUND TOWN To view events calendar click here
Making Sound Business Decisions During The Recession: To register for this event click here
Addressing Strategy, Finance, Organizational and Legal Considerations
Price $30 includes breakfast Date: May 5th Time: 7:30am-9:30am
Location: Pepperdine University West Los Angeles Graduate Campus (Room 203) |
