Coronavirus COVID-19 cases spreading across the world! Interest rates slashed! Stock market falling! Oil futures plunge! US-China Trade War looming! Recession signals flashing!
These are just some of the recent headlines that have bombarded our collective consciousness. Over the past year, we continue to hear reports that an economic downturn is on the horizon. These are the types of headlines that especially keep CEOs and business owners up at night.
So WHEN will a downturn hit?
If I knew that precise answer, then I wouldn’t be writing this blog and instead be on a beach somewhere enjoying my vast fortune.
Kidding aside, nobody knows for certain when a true economic downturn will hit, but recent events suggest it could be sooner rather than later. And in any event, business – as in life – goes through cycles and some sort of downturn, pullback, softening or all out recession will happen.
The true question is, will you be ready for when an eventual downcycle happens?
This is the only thing you, as a CEO or business owner, can control. How do you prepare your business to remain viable through the tough times, and end up thriving on the other side?
At ClearPath Business Advisors, we help CEOs and business owners create a healthy, sellable business whether they plan to sell or not. While there are many levers a CEO or business owner can pull to create a more valuable company, we’ve identified three main areas of focus during these uncertain times.
- Protect Cash Flow. Cash flow is the lifeblood of any business. There is a myriad of ways to ensure cash keeps on flowing and there can be an entire blog post (and more!) dedicated to just this. Whether it’s taking measures to reduce cash outflows or increase cash inflows, you should focus on forecasting cash flow so you can better understand how to pay off debt or how much money you can sock away. Also, having a great commercial banking relationship is important.
- Create Customer Intimacy AND Diversity. Doubling down on the service you provide your best customers makes it genuinely harder for them to leave you when the going gets tough for them. Sit with them more frequently. Listen to how you can help them. Show them how much you appreciate them. At the same time, while it depends on the industry, there can be risks to customer concentration. If any single customer accounts for >10% of your business and your top five customers account for >35%, then you need to take measures to expand your customer base. You can offer something more or different from what your competition is currently offering. Or expand into another market entirely. It doesn’t need to be an expensive endeavor. Be creative.
- Introduce Process & Productivity Improvements. Re-evaluate your inventory policies (how much cash is sitting in your warehouse?) and streamline your operations that haven’t been rigorously reviewed recently. There is always an opportunity to get all employees on the same page to become more efficient and productive – so everyone can weather the downturn together. Then reward those who rise to the challenge. What we witnessed firsthand working with clients during the great recession of 2008 is that the tighter they became on process and productivity, the more they flourished coming out of the recession.
Whether a downturn happens tomorrow, this year, or next, will you be ready? Feel free to reach out to discuss more.