How to Recession-Proof Your Business
Is it too late to tighten the purse strings?
by Drew Ermenc
February 25, 2008
Economists famously
argue that we don't really know if we're in a recession until we're actually out of one. Consumer
confidence is down, unemployment is up, and let us not forget about the subprime mess that
snowballed into the ensuing credit crunch and subsequent housing downturn. "If we're not in a
recession, it sure smells and tastes like one," says Marvin Davis, a corporate crisis expert and
the author of Take No Prisoners, a new book that acts as a "survival guide" for companies facing
lean times. He outlines a number of factors weighing down the economy. "We are facing huge energy
costs right now, not like anything we've ever seen. Banks are shrinking back on risk. And hedge
funds are buying companies in very big multiples and piling on the debt."
As the "R" word whispers quickly grow louder, is it too late to prepare your business for
what many say is an inevitable economic downturn? Davis says no. "It's certainly tougher than it
was six months ago, but there are certain things you can do." He's created his own 12-step program,
which is featured in his book that can help business owners prepare for what's to come. Several of
them are outlined below:
Marvin Davis shares all 12 steps
on a
Catalyst
magazine podcast.
Plan for ‘what if'
"Prepare a pessimistic forecast," says Davis. "What happens if my market shrinks by 10 or 20
percent? What can I do?" He suggests that business owners need to establish answers to particular
scenarios. Cash flow, he says, is vital, and if you're in a highly leveraged business, you may be
able to forecast an impending disaster. "You need to pull that all together."
Reexamine your market
Find out if there are revenue streams you might have otherwise ignored or
overlooked. "Maybe there are different sectors of your market that you might not have
looked at before," he says. "You have to offset the shrinkage in the marketplace. We're not talking
about the low-hanging fruit."
Offshore sales
It's no secret that the dollar is weak, but that's only an incentive to look at exporting
your products. "There's a real opportunity to sell internationally today," he says. "There's a
perfect vehicle to do that now; it's the Internet. Even a small guy can sell offshore by utilizing
the Internet. Anybody who's not in the Internet just isn't in the game today. It's not that
expensive, you can bring up a site for a few thousand dollars. Technology has caught up, and the
cost has dropped dramatically."
Get rid of nonworking assets
When crisis consultants come in to analyze struggling businesses, one of the first items on
their checklist is to locate excess inventory and unused equipment. "Find old equipment and stuff
that's sitting around, and get rid of it," he says. "It's not doing you good anyway, so let's get
some money for it, and put it to work. I consider it to be underutilized cash." One of Davis' goals
is to reduce debt as much as possible during the tough times. "The companies that succeed in an
economic downturn are relatively debt free," he says. "The way to do that is to get rid of
nonworking assets."
Increase advertising
Business classes might teach that the marketing budget is the first to get slashed during
lean years, but Davis disagrees with such a pullback. Although higher marketing costs in a downturn
appear counterintuitive, he says, he believes now is the time to stand out. "If you think about it,
you're trying to capture share. While others are reducing their advertising budget, I tell [my
clients] to increase advertising. By increasing your exposure to the marketplace, you're standing
out. It's logical."
Keep your eye on cash flow
"Without cash, a company dies," he says. "It's like blood in the human system," Davis
believes that by creating a 13-week cash flow forecast, you're putting all balance sheet items on
paper and can be better prepared for any issues. "I want to know when my receivables are coming in;
when I have to pay my vendors ... if [the owners] do it themselves, they can anticipate the
problems."
Keep up morale
Open communication is very important in tough economic times. "This doesn't cost money," says
Davis. "Just talking to [employees] often helps." The alternative is the possibility of key people
defecting to competitors. "Be honest with your employees about the current situation."
