Seven steps to survive recession
October 11, 2007 I have a page where I suggested that the credit crisis will be far worse than thought, and the effects on the stock market, the financial system, economic viability and inflation is significant that he wrote. I updated the article, November 30, when I realized that the tension is visible in the month of October was more severe and that 2008 would be a very rough ride. Now it is clear that the economy is slowing dramatically, and many observers believehas caused, or perhaps already in recession. The question is not whether the economy will slow in 2008 but slow to get.
Credit crunch has lost its atmosphere of crisis, but in many areas of the credit markets are still paralyzed. We know that the impact on housing and related industries. But most are just beginning to understand how the paralysis is that consumers in areas with the exception of real estate. Nowhere is this concept moreevident in the performance of equity markets in the last two weeks in which traders who blindly ignore the warning signs for months suddenly saw that the party had completed a long time.
Falling home values have taken away over 1 trillion U.S. dollars in purchasing power of consumers at a time when soaring food and energy prices is a fan of family budgets. Inflation, and not "inflation" core ", but the real inflation is felt in your wallet, it is closer to 4.0%, and if only you lookfood, energy, education and health care are much higher. Unemployment is at two-year high of 5% and heading higher. The home equity ATM is broken, and consumer confidence is a two-year low.
As a result, retail sales down across the board. Many big retailers reported falling sales in the month of December, with only Wal-Mart has increased. November and December retail sales had been together for only 1.7%, the worst holiday showing since 2002 [1]. Sales of everything from cars todressed as burgers Lattes are down and backwards. Rises to a level not seen since the recession of 2001 Foreclosures and payable on credit cards, auto loans, home equity loans and home equity loans [2]. Banks are adding to reserves and reduce the loan. The American consumer is clearly under increasing financial stress and are nervous about the economic outlook.
Fed said it is ready to cut interest rates aggressively economics [3 protection]. Lower pricescan help, but is unlikely to encourage consumers to start talking again. This is because consumers are simply taken under the pressure of high food, energy and health costs. The home equity ATM is short of cash, which means that consumers can not borrow to spend. It seems that those who can not be used due to economic considerations. And who does not agree with the Fed rates, banks just to make new loans did not increase in reserve requirements and capitalweakened due to acceleration of the credit. When banks increase reserves for loans that are past their stop new loans.
Officially, the Fed failed to recognize that we are heading towards a recession. Chairman Bernanke speaks in terms of slowing growth in the first half, but the acceleration in the second half of 2008. But it is clear that there is a growing concern among the Fed and many economists in the private sector. Some private sector economists expect a recession short and shallow, while othersI still think that we're already in one. A growing minority that we are in or heading for a long, deep recession caused by excessive levels of government, institutional and individual debt accumulated over the past six years.
Time will tell. But if you try to predict the future, it is important to consider, after the credit crisis erupted in July 2007, the Fed has underestimated Wall Street and most private economists, the impact of subprime crisis at:
• The areas not subprime credit markets
· Losses on financial institutions (the loss is still underestimated)
· Housing recession
• Access to credit for consumers
'Ability to use and willingness to use
The global economy
Perhaps economists miss the mark because of optimism. Perhaps the officials of the Fed wanted to show their true opinions for fear of causing a recession say. Maybe> Bankers do not want to recognize the extent of their losses, hoping that the market would correct itself. Or maybe none of the experts in perfect shape short and precise could interpret what they see, because this particular combination of strains on the economy are unprecedented. What is clear to me that some of these professionals has increased to 30,000 feet level in an attempt to create a logical progression from past events and future.
OK, so what doesthe company owner or manager? This means that even if your company has not slowed down, probably will not, and soon. This means that one must be open to the possibility that an economic slowdown could be much worse and much longer than the prevailing consensus. And this means that some consideration should be given to how long a recession will affect your business and what you can do to reduce daalrisiko. I think there are seven things that a company can do before and during thedifficult economic climate, the possibility that the other party of a stronger competitor for improvement.
Seven steps to survive recession
1) be a leader – the user must master, but this does not mean that everyone will follow automatically as you will. During a cycle of people going to look out for their parochial interests, more than at any other time. This means that decisions can be made or actions considered for personal gain, but perhapsdamage. The challenge is to get everybody to understand that their interests are one and the same parish its interests. This means that they think they're a team and act accordingly. It also means that you must be a leader, not just the head.
It would be difficult to do. Everyone is already starting to look to you for guidance, inspiration and comfort. You just need to turn to, encouraging and willing to listen – to everyone. Youto spend time in every part of the 'organization in interaction with people at all levels. It should be seen as human beings. It is necessary to maintain a safe, positive attitude. This positive attitude is contagious, not only with key lieutenants, but also with the rank and file members, customers, suppliers, creditors and investors. People who think they are an important part of a team, their contributions are noticed and appreciated and that their leader has everything under controlhappier, feel more secure, less stressful and more productive.
When you take that positive, confident, "everything is under control" attitude of the government, other key players also receive and be comforted. Customers and suppliers will have more confidence to sell and buy from you. Creditors will be more collaborative and less intrusive. And investors need fewer definitions. In difficult times the importance of a safe, positive leader and not just the bosscan not be more appropriate.
2) hope for the best but plan for the worst – Plan how to react to a prolonged recession. If you play on the audience that will be slow to react rapidly to changing circumstances and will probably make mistakes. The plan should assume that 2008 is a very tough race, with intense competitive pressure will be. What you need to examine all aspects of your business and make a detailed financial plan and cash. When developing the plan, do scenario analysisdifferent revenue and gross margin assumptions. Try to imagine a worst case scenario and then make it even worse. Remember, legislators, and most economists have always underestimated how bad it could get.
Develop pricing and marketing strategies in different economic conditions. Decide in advance whether you need to emphasize the volume at the expense of gross margin, or the protection of your pricing structure at the expense of volume. Research on the effects ofincreasing or decreasing marketing costs.
Consider your range of products and services. Determine who is the highest gross margin, using the minimum amount of working capital and require the least amount of overhead. You may have to retreat to some basic products or services.
Know in advance how you can reorganize to reduce costs in an economy that has changed by growth. Especially look at the features that influence G & A costs.
Focus on cash –Rather than making a profit. This does not mean that profits should be ignored, only that cash is king in a loop downward. Research on the economic impact of accelerating or deferring capital expenditures planned. As a planned investment of capital to increase productivity and eliminate costs that would make sense to go with him. Only a detailed economic analysis tells you.
3) Listen to your people – people are the best source of information about things that happen in yourindustry and the mood in the company. Speak directly with them without their supervisors are present, then the information you received is not filtered. Test their ideas on how operations can be improved, enhanced and reduced costs. Hold impromptu meetings with advisers and ask them the same questions. If you are surrounded by a management team to do the same with them. Depending on the discrepancies or inconsistencies in the information you receive.
Decide who is your mostproductive and versatile employees. Look for those who can assume greater responsibility that you have to cut. If you are crazy, and people complain openly negative. These are bad apples, which can poison which would have a positive atmosphere and lead to a moral problem. Being proactive in weeding the bad apples and poor performance. If you do not want to hire someone yet to find a way to get rid of them. Many high-quality people will be looking for work.
Finally, yellowin your praise and publicly recognizes employees who have a big job to do. Employees usually go the extra MIL, if you feel appreciated and a pair of theater tickets or dinner with a spouse can generate a lot of good will.
4) Know your customers and suppliers – must be a customer at the center. The entire company should customer satisfaction as its number one mantra. Do not skimp on customer service. Not only did you need the goodwill of customers, but you mustto understand customers 'problems'. Come closer to your customers as possible. Nothing can hurt more than a customer who can not or will not pay. Ask your sales staff to report on their customers, but understand that the filtered data. Ask your employees in customer service, collections and sent to tell their negative rumors about a client to hear. Watch what you're A / R aging daily. Dedicate a person to contact all customers on the first day, the offender and the dailyafter. Do not be afraid to create an account on COD. If an account is 90 days past due, will offer a discount for quick payment on your account on COD. To be paid as a real problem, since a collection of them.
If you can not do badly as a customer who can pay, perhaps, is a supplier can not provide. Just as with customers, trying to ascertain the financial position of the major suppliers. Perform periodic inspections of credit. Listen to what your industry sources. Askpeople in a P / and sent to tell their negative rumors about all providers hear. Looking back over the suppliers of parts and key components. You can get the best price if you use different suppliers, but it's better than you suddenly cut off supplies. Finally, there is an old saying that "regular pay makes fast friends." You can be the supplier of good will must then try to pay bills on time.
5) Get lean and mean, but not be short-sighted – in a steep downward cycle every penny savedreally is a penny earned. Cash is king, then you must look in all corners of society to find ways to save money. Starting at the bottom of the organization and look for ways to become more efficient. Work the way to the top and try every way you can save.
Start with store, send and receive. There are all the waste or redundancy of these functions? The shipping cost is passed on to customers, and if so, are marked up? You can create your accountcustomers for shipping, use the cheapest shipping rates? Have not received the information they need at the time of arrival? If there is no waste. Goods received in the system and do the same in stock, so it is available for purchase? If there is probable inefficiency and excess inventory. Non-receipt of notice a S / in time to hold or be controlled? Controls are necessary to preventshrinkage?
Consider purchasing procedures. And the purchase of centralized? There is a written purchasing policies and controls? That makes the purchase of a decision and when? Inventory purchases are covered by the control of the stock market? Authorizing the purchase from the office? Do you buy things that people want or the things that people need. Purchase copies of purchase orders to be sent to a P / E has received over time? In most companies a lot of money wasted on buyingGood times. It's actually one of the most abused in the company.
Look after the costs of the vehicle. Do you deliver vehicles for company business? Is that these vehicles can be used for different company business? Not for users to keep mileage logs? Have you credit card company petrol assigned to specific individuals and are limited because they can be purchased? It is limited to specific vehicles, so your customer service technician can complete a personal vehicle?It is the supplier of reference to distinguish between a can of oil and a cheese burger? Will reimburse mileage to employees who use personal vehicles on company business? Is the IRS allowable rate or a lower rate than business? What kind of reports you need to realize your miles? Is there some place, at least to see if the mileage shown seem reasonable? Vehicles can not be a huge cost center for some firms and not much control over the good times to get.
ViewYour procedures for cost control. Who is authorized to spend its money? You wrote the policy for reimbursement of expenses, and when was the last time they were again? How often should people pay for personal expenses on company business? If it is more than a week, you have a lot of money wasted. Ideally, people should be compensated the same as wages. What tests are necessary to support an expenditure? You received IRS guidelines to follow? This is probably where OK''good times, but in a loop, you need receipts for small expenses, or perhaps even all costs. Approving expense reports? This must be responsible for direct labor, plus an employee of the company.
Now expect your support and administrative costs. Depending on the positions could be consolidated – two in one, two, three, four, three, etc. See if there is an administrative assistant to support more than one person. View servicesresponsibility to see if consolidation can reduce the staff of the department. The analysis of all forms and in relation to the area to see what is superfluous or unnecessary. Often found a few that are no longer needed, but only because they were still there. Find out who are even reports that do not really need it. Launch a campaign to promote the use of paper, ink and other supplies at all levels.
Internal audit policies, procedures and controls to see ifrepetition and effective. Sure they do not create unnecessary work. Ensure that activities are treated properly managed. This includes inventory, warehousing and operations of the store. Be sure to check the stock records kept under lock and key and that access to bank accounts is limited. It would be a good idea for a senior lieutenant to review each bill before it is paid or if the volume is too heavy spot check them. Require double signatures for the management of an amount which is the practicefor your business.
Call suppliers of professional services. Negotiate with your accountant for a better deal. It is likely that after a year of good times that you pay more than necessary. Review insurance coverage with your agent to ensure that you are no longer safe. Combine all your insurance needs in one package and ask the agent you get three competitive quotes. Meeting with your bank and ask how they can help rates and reduced costs. To switch banks, if yourExisting banks not to cooperate. Find a cheaper processor of credit card. Consider signing up for a small business prepaid legal service. The plans are very reasonable, has benefits for employees and can save thousands of dollars if you suddenly need legal assistance. It is likely that you will be in a cycle downward.
See how to use the technology. Are your systems with the correct information in time? Are using the Internet to your advantage? You have asite that attracts visitors? Your customers can order through the website or answer customer questions? Is your company policy and procedures that are available on the network? It is commonly used forms are available on the web? The form can be completed online or you have a printed edition to use it? Relevant employees can access the network remotely? You have adequate network security? Using VoIP to reduce telecommunications costs?You took the best possible deal from your ISP? How about from your mobile operator? When was the last time you're a competitive price on these services? Using the correct technique may be a significant savings and greater efficiency to offer. The appropriate use is a huge cost center can be.
Finally, there is an area where you have to spare – not sales and marketing. The best way to get through the cycle to generate revenue as possible. Does not need to useinterchangeably. Means to be used wisely to keep the company and its products in front of his customers. Focus marketing spend to promote events and advertising. Discount coupons, special offers running, hold events, something to attract the attention of customers'. The results of these efforts could be easily followed to see what is most effective. Actively involved in the production of lead for the sales staff so they can concentrate on developing new customers, in addition to new business from existingcustomers. If you want to advertise advertising of the product selected places, or be directed to a selective audience. The results can be easily followed to see if the expenditure was good. They do not see advertising. It is ineffective if not done in many years, and the result can be difficult to trace. Track the productivity of your sales people. In most companies a small percentage of the sales staff account for most sales. You may have to eliminate non-productive employees. YouIn addition to investing in sales training, as a way to upgrade your staff. The point is to invest in sales and marketing, but invest wisely.
6) Maximize Cash Flow – It 'always important to maximize cash flow, but in a cycle low is very important. There are many things that even small companies can do at minimal cost to improve cash flow. Some of them have already been discussed above, including the preparation of a cash budget, centralizing purchasing, diversification of suppliersavoid confusion, make credit checks on customers and suppliers, and aggressive efforts to collect criminal records. Other things can also be effective in raising money.
Declaration Turn obsolete or slow money by discounting to move quickly when a sale or distribution of the inventory stock to the seller. Just write the inventory can be reduced to save cash, although it is not sold, because the loss was made books that will reduce income taxes now or in the future.Apply to the extent practiced "just-in-time inventory systems. Such systems can free up cash that would otherwise be tied into inventory.
Take vendor discounts on A / P when it is available if your company additional cost of capital is lower than the yield of annual compensation. The formula for determining the price of a discount rate (discount rate x 365) / day has won in cash received. Thus, if the terms are 2% 10, net income 30 per year is the equivalent of 36.5%. If aincremental cost of company capital is less than 36.5% of the discount should be.
The service of a collection of dedicated employees. Are the customers call the staff regularly for information on payment, if payment is late. All payments to the client process immediately – do not leave in a drawer to bring them the next day. Deposit collections daily if not using a lock box. Make it easier for customers to pay. Activate a return envelopes with invoices. Few customers can dodebt. Arrangements to accept bank transfers, loans, transfer of control.
Access Discounts is an effective way to accelerate payments, but can be expensive. The annual cost of a discount of 2% taken 20 days before the culprit is equal to a 36.5% annual percentage rate. In this case we will give a discount if your company additional cost of capital is higher than 36.5%. An alternative to the acceleration of cash flowsthrough discounts may be available to borrow against accounts receivable in a line of credit capital. Because the discounts are so expensive, it is essential that customers get a discount when paid after the date of prepayment can be avoided.
Use cash third party systems management to accelerate, monitor and manage cash. A third-party services provided by banks as a means to accelerate the collection, deposit and investment of your money. These services usually consist of palaceboxes, accounts receivable, accounts sweeps, online reporting and investment services, in-house and on-line scanning as depots alternative lock boxes. On-line information systems give the owner or manager access cash to daily activities.
7) Create a strategic balance – a strategic balance will help you to isolate the hard times economically, and will also benefit from the opportunities that present themselves during this period because of a fewanother casualty company. A strategic balance is what the company offers a defensive position on a longer period does not act aggressively when unexpected opportunities. A strategic balance is characterized by low debt, low impact, high liquidity ratios and high efficiency with low debt service ratios. When a striking down of the economic cycle in severity from a defensive balance can be difficult to achieve. Use the time to pay the debt reduction, accumulate cash,reduce the need for working capital, the organization of back-up credit lines and to identify capital expenditure, if necessary, may be postponed.
It may be that in 2008 a year benign, characterized by slow growth and low inflation. But every week that passes brings new evidence that a recession is probable and can be very bad. It is not premature for CEOs and business owners to take steps to minimize the negative impact that a recession will be limited. The seven steps outlined above can help,although, of course, not all apply to any activity. E 'is also likely that many companies do not have the ability to in-house and the expertise to implement these measures. The economy is in growth mode for the sixteen years, with the exception of an eight surface-recession months in 2001. A simple fact is that many managers and entrepreneurs, should not have to go through an environment of long-down business problems arising therefrom. In these cases, individualsshould consider a career with a history of sound management of these rental problems.
On the one hand I thought it would pass. In a protracted slowdown will inevitably become victims. In the range of possible activities shrinks and weaker competitors are crushed until he has had to throw in the towel. This creates problems for some and an opportunity for others. It would not be wasting time thinking about what the competitors can be a valuable partner in the merger betweenright circumstances. Sometimes two weaker competitors may combine to create a strong leader.
[1] Retail Metrics reported by The New York Times, January 10, 2008
[2] The American Bankers Association, January 4, 2008 Report
[3] Chairman Ben Bernanke, January 10, 2008