Business has to adapt to the changing conditions and change your plans. Business conditions right now are transitioning into a more severe recession than expected. The shutdown and forced sales of US financial companies and banks. This is the reason for the bailout which really should be called a credit stabilization bill.
Inflation was the story at the beginning of 2008. Currently inflation is being reduced by the improving value of the US Dollar. It is not how much the US economy has improved, but the global economy has gotten worse faster than expected in Europe and Asia. Only the oil producer’s economies are doing well. The rest of the world is slowing down quicker than the US economy is.
Helping with inflation is the bursting of the bubble in commodity prices. Oil rose to a high of $145 per barrel, and now has returned to around $95 per barrel. This happened in only a few months. Oil price will be volatile depending on political and weather related interruptions, but is gradually dropping towards the $60 – 80 range in 2009. Demand for all commodities except food has dropped.
The real problem now is the credit crunch. Banks are trying to raise capital to survive, and are not giving loans they gave last year. Credit card companies are tightening their limits because of losses. This not only affects consumers, but lots of small companies use credit cards instead of a line of credit. Lines of credit are harder to get for larger businesses. Taking a second mortgage on your house is more difficult due to lower values and tightened lender requirement. These all will accelerate the credit crunch.
Keep your perspective. No recession lasts forever. There are a few steps to take right now to prepare.
Hang on to all your cash
1. Sell down inventory as low as you can. Sell excess and obsolete products by reducing prices.
2. Cancel all unnecessary expenses, subscriptions, software, and leases.
3. Sell and scrap unnecessary equipment.
4. Lease out or sell unused space. A sublet tenant can improve profits.
5. Pay credit on time and make sure your bank knows you are profitable. You need a good relationship for future credit needs.
Review your products and prices
1. Do you know which products create profit for you? What do they actually cost without overhead?
2. Increase prices or discontinue unprofitable products. Do you need all the finishes or colors? Increase prices on money losers to reduce demand, or…
3. Replace dated and noncompetitive products with new designs to improve margins. Design simpler products or combine two products to reduce cost and improve margins.
Improve your business
1. Advertise more. Stay in contact with existing customers more. Find new customers.
2. Expand by adding more products to sell existing customers. Partner with other suppliers to your customers.
3. Keep your key people and performers. It is too expensive to replace your best talent.
4. Hire better talent. Lose your weakest performers who slow down or move them to positions where they have ability. This is the best time to find the people you need to grow and be ready for the recovery.
5. Plan to grow more profitable over five years. Find new products, services, or profitable niches. Others are cutting costs only. The great companies grow more competitive.
Recessions are opportunities. Take full advantage of them for your benefit.
