It is obvious something is very wrong with the economy. We’ve all heard the words recession, inflation, stagflation, bankruptcy, insolvent, bear market, bank failures and many other negative descriptions of today’s economy. But the government will not admit to a recession. The Chairman of the Federal Reserve and a host of Wall Street economists want you to believe that the economy is okay. The Secretary of the Treasury tells us the "economy may avoid a recession." But we know that something is amiss. That something is credit.
Credit provides liquidity, the oil of the economy. Without it the wheels of commerce freeze up. Credit provides the cash many businesses need to fund their working capital and acquire equipment and inventory that make them more competitive. Without this source of funding many businesses must tighten their spending and put off growth plans. As a result, the economy will feel the affects as unemployment increases, sales and profit take a hit and the markets reset their expectations. As a tax consultant, I have had many discussions with clients on what they can do to survive. I’d like to share a few of these suggestions for weathering the recession.
You know the old saying, “Cash is King!” If you have existing credit facilities, check their availability. Many banks are in a death spiral and trying to retain their own cash. Lines of credit are being closed. If the line is available, take some of it and buffer your cash accounts. If you don’t have credit facilities, find them now and access them. Cut expenses wherever possible, to the bone if necessary. Take a look at your own lifestyle and see if you can manage without using your credit cards. Improving cash flow is the first step in surviving a downturn. Make the cash flow positive. It comes down to surviving until the economy improves, and it will.
Remember those mission statements or ideas you had when you started your business, “We are going to be the best provider, the premier consultant, …exceptional service…” Now is the time to implement those mission statements. With the slowdown most have the extra time, use it. Do the extra things that distinguish your service. In times like these, it’s the extra mile that can mean all the difference.
During boom times we get so busy our purpose becomes clouded by the almighty profit. We take our customers for granted. Reconnect with your customers and vendors. Visit with them, speak to them, share ideas and ask for their help and offer yours. We sometimes get an island mentality and think, “What’s in it for me?” Nothing if you have lose those relationships to your competitors.
If you haven’t created a budget yet, do one now. Use actual results for the first six months and prior year results as a guide for the remaining half of the year. Allow for various scenarios so you can visualize where adjustments can be made if things get worse. This gives you an action plan and benchmark to navigate the storm. If the budget you have created is obsolete, redo it. Remember, increasing the cash position and reducing expenses can go a long way. Budgets allow you to visualize and manipulate the plan.
Keep a positive attitude. Business cycles are normal things. They have been occurring since man has been trading. Unfortunately, governments have been manipulating the normal business cycles by increasing money supply(inflation) and using fiscal policy to avert the downside of the cycle. You can’t avoid the downside, only postpone it. By postponing it the cycle gains amplitude, bigger and longer upsides with sharp long downslides. The bad news is that it is going to get much worse for many. I see at least another year to two for the recession. When the government finally admits to it, we are near the end.
The good news is that people who realize what is actually going on can position themselves to take maximum advantage of this period. Remember, "Wealth is not destroyed, it is merely transferred." Wealth is not just money or material things. It is many more things such as providing excellent service, building positive relationships, health, positive attitude, and learning from your mistakes. Wealth is what makes us better people. Will wealth flow to you or will it be transferred away?
You have the choice, make it.