…is preparing for the worst. Even if it doesn’t come.
As we hurtle towards 2019 and ever further away from our carefree childhood days, I am reminded of the phrase “coming, ready or not!”
Only the context is no longer a good game of hide and seek, it’s the purported gathering of clouds on the economic horizon. Could our children really be about to experience the pain of a recession for the first time in their lives?
Whether ‘it’ is coming or not is a matter of opinion. Time will tell. I am not as bearish as some.
Yet there is plenty of material for the ‘bears’ to point to: US President Trump playing a game of blink with his Chinese counterparts, the ASX dipping below 6,000, falling Sydney house prices, tighter lending conditions and the prospect of increased interest rates has many a pundit keen to tip a downturn of varying proportions.
So, what should you be doing right now? And does that depend on your view of the economy?
Now is the time to be making sure you are ready for whatever happens.
Suppose you are riding high. Sales are good, profits are good. How different does your business look now, compared to how it looked 10 years ago? It’s a generalisation but we’re guessing one or more of the following is true:
- You have more staff
- You have bigger premises
- Your fleet of cars has grown
- You’ve added non-core products or services
- You’ve borrowed money from the bank
- Your working capital is a multiple of what it used to be; and
- You’ve invested in the infrastructure needs of your business to keep up with demand
“So what?”, I hear you ask. Well, it’s bloody hard to come down the other side of that wave, that’s what. You see, we’ve made legal and emotional commitments to our new level of activity. We’re locked in. And our businesses are inherently connected with us. In that same 10 years, YOU have changed.
- Your spending has increased
- You have completed renovations or moved to a nice new place
- You drive a nice car; and
- Your lifestyle now includes regular nights out and overseas holidays
How do you adjust?
Practically, I mean. Well it starts with the planning and it’s much easier to plan with a clear head. i.e. now, when you are not under any pressure to think and act fast.
Here are some of the things you might think about:
- Who needs to be involved in this conversation?
- What are the earliest signs that we need to make adjustments? Is it three consecutive months of lower sales, is it when the pipeline of work gets down to three months? What is it for you?
- Do we agree on what those signs are?
- Realistically, what adjustments can we make:
- In the short term; and
- Over the longer term?
- How does that differ if the downturn is mild/medium/severe?
- Are we prepared to take decisive action early?
- Are we wasting any resources right now? Could we already be leaner than we are?
- Do we have access to additional cash resources to see us through in a tighter moment?
- Where do we generate our profit? Particular products or services, particular segments?
- What are our cost drivers?
- Are we propping up any sub-scale or under-performing parts of the business?
- Which staff are crucial to our core?
- Which staff would go first? Would we cut once but cut deep, or go softly?
- Have we built up significant provisions for annual leave or long service leave?
- Would we need to pay redundancies?
- When do our leases expire?
- Could we sublet our premises?
- Do we need to take advice on any of the above?
“Worrying is like paying interest on a debt you don’t yet owe”
– Mark Twain
Sorry if it comes across that I am being a ‘black hat’. That’s actually not the point of this article.
The point is – this is a good discipline for you to employ no matter what. It’s just good planning. If you buy insurance or you own a fire extinguisher, you know what I’m talking about. Planning ahead because it’s too late when the fire starts.
By Neil Parker
20th November 2018