Hate to be the bearer of bad news, but the credit crunch is bringing a recession to the US in 2008. If you are managing or owning a business, now is the time to plan for this year’s recession.
Are you familiar with derivatives, CDO’s, credit swaps or the subprime mortgage market? They have been the latest way banks, hedge funds, insurance companies and other investors tried to increase yields by bundling loans together. The problem is they have not properly accounted for the risk, and not enough reserves are in place for when these investments fall in value.
So people who lend money do not have enough money to lend more. Credit will increase in cost, and less will be available for business to borrow. This will slow the economy, and consumers are not able to borrow to finance more purchases.
What do we do now?
First of all keep perspective, no recession lasts forever. They are normal parts of the business cycle, and there are several steps you can do. It may be mild or a full depression, but the actions you will take are similar. You just may be forced to take more actions in the event of a depression.
Hang on to cash
If credit is hard to get, you are going have to fund expansions internally. The Stock market may not fund you, and lenders are nervous. Be prepared by watching spending and cutting overheads.
Know what makes you profit
Most people know volume of sales, but few allocate expenses fairly to each product line. It is easy to spread personnel, advertising, and overheads over all sales. It makes more sense to know which products or services cost more and what they make. Allocate almost all personnel to product lines, allocate inspectors and freight to materials, and then spread the remaining unallocated personnel and expenses over all labor and material expenses. This will show where you actually spend your resources, and how much each product or service costs. Then figure out your profit margin.
Re-price products to make a profit
Sales have to make money. Even advertising loss leaders have to increase sales to be worth doing. So evaluate which products or services create value, compare to competitors, and don’t just be the low cost provider. Less sales may make more sense for some products and services. Especially if you are losing money per sale. Price accordingly.
Kill weak products or product lines
Redesign or rationalize product lines. Let good products eat weaker products. You want products to go after competitor sales (or increase your profits), but not just because we always sold that. Can you buy someone else’s cheaper?
Design better products
Design is often the deciding factor in sales. Good design has value in attractiveness and functionality. Don’t blame the sales team for a poor product or service. Create better, faster and new services. Make products have more value. Create new looks and new markets. Growth is finding opportunities. Make sure you design to win.
Sell more to existing customers
Offer additional services and products to your existing customers. Your customers are valuable. Don’t lose them to competitors, but make yourself their partner by adding value to them a discounter can not match. Sit down and find out where their pain is. Look where you can grow servicing your best customers. Bring ideas and contacts that will grow their business. They will remember.
Find new customers
Don’t quit marketing or advertising. Find competitors to your existing customers. Especially find the young growing business that may become prime customers.
The US dollar is falling in value, so find new customers in other countries. China, India, Dubai and Asia are growing in wealth so are great markets to open. Europe is now cheaper to sell to. Take advantage of your value by finding representative in these markets.
Make advertising show results
Get their attention. State your benefits clearly and believably. Get feedback. Motivate your customers to do something. Make sure your advertising is in line with your strategy.
Hire people who will contribute to bottom line
Keep your winners and make them partners. Always look for designers, engineers, sales, and leaders to make your business grow. The advantage of a recession is less competition hiring the best people.
Review your strategy
Does your current strategic plan match the changing economy? Be realistic, be opportunistic, and believe you can succeed. Others will just try to shrink their business and may hurt themselves. You can actually grow market share by being aggressive in going after business by creating value.
A recession is really just normal business. Just be focused on what needs to be done like normal, and do the hard work that gets missed when you are growing fast. Your people will overcome a recession if lead to face the problem. It is up to you to lead.