By Jeffrey S. Schloemer Co-Chair, Business & Finance Practice

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Most people alive today are unlikely to remember any economic downturn as severe as what we are experiencing now.  There were severe recessions in the 1980s and the 1970s, but those recessions did not approach in magnitude our current economic crisis.  If ever proof were needed that we truly live in a global economy, the worldwide scope and severity of this recession provides it.  Nonetheless, there are genuine opportunities that exist in any economic climate – including a severe recession.  Smart businesses can use the current recession as an opportunity to evaluate (a) their current positions, opportunities, and problem areas, (b) potential changes to address each, and (c) how to implement those changes.  When Taft advises our clients on sustainability and growth, we suggest that they work through the following outline:

1. Where does your business stand?  Are sales dropping?  Are receivables collections slowing?  Are particular business segments stable or even growing?  Have cost centers become luxuries or even unproductive?  How are costs of capital trending?  Are less expensive, untapped sources of capital available?  Now is the time to focus on the metrics of your business.  Evaluate every line of your periodic financial reports for historical trends and determine how they will impact your financial health and ultimate survival. 
2. Focus on what you can control.    You cannot change, or even have an impact on, things like bank interest rates.  You can, however, control your costs and work to increase revenues.  If your business is at risk (and even it if currently appears to be safe), focus first on survival.  If your business does not exist in six months,  a five year plan is pointless. 
   1. Expenses.  Review closely each expense item.  Is it a short term necessity, an investment, or a luxury?  Keep  necessities.  Exercise care with investments.  Cut back if necessary in order to survive, but stay mindful of future costs.  Cutting back on marketing or eliminating employees now could result in excessive costs later to reestablish your brand or to hire and train replacement employees.  Eliminate the luxuries. 
   2. Revenues.  On the revenue side, focus on collecting your current accounts and ensuring that you do not throw good money after bad.  But walk a fine line.  Now is a time when you can build stronger future customer relationships.  Patience and commitment now will in most cases be remembered tomorrow by financially troubled customers that survive this downturn.  However, be realistic.  It is not unreasonable in the current economic climate to ask for credit enhancements, such as shorter payment terms and smaller caps on outstanding balances.   Keep the lines of communication open with your customers.  Expect customers to keep you informed of changes in their prospects, and to live up to commitments or to honestly keep you informed of why those commitments need to change.  The surest signs that it is time to cut off a customer are when the customer will not return your calls or ceases to live up to commitments without an advance explanation. 
   3. Opportunities.  Recognize that mere survival in a severe economic downturn presents opportunities.  Weaker competitors will cease to exist, and their customers, inventories, sources of supply, and employees will become available.  Revisit and renegotiate supply relationships to ensure that you are receiving appropriate value for your money.  If you have capital available, bargains can be had.  There is greater safety in focusing on long term investment and acquisition opportunities rather than short term gambles.  If you are investing for the long haul, you do not need to time your purchases perfectly.  While there is no guarantee that the economy has hit bottom, that becomes less relevant if you look toward a five or ten year window.  Evaluating the upside of an acquisition opportunity over the next ten years versus the next nine months may well reveal the nine month gamble to be a ten year steal. 
3. Develop and implement a plan.  Whenever possible, act proactively rather than reactively.  Develop a plan to cut expenses that are luxuries, to focus limited resources on the most promising (short and long term) existing and potential prospects, and to become more efficient.  Ensure that whatever plan you formulate has specific action items rather than only general goals.  Once implemented, evaluate what impact (positive, negative, or nonexistent) the plan’s actions have and do not stay wedded to a plan that is not working.  Keep planning.  It’s an ongoing process.  Your business, like the economy, is constantly changing, and needs to be ready to adjust to new challenges and opportunities.