Prepare For The Squall

On my last ocean passage sailing from the Northeast U.S. to the Caribbean we encountered several days of squalls; one after the other. You can track them on radar and know when they are going to hit. We only encountered winds in the 30-35 knot range. In some squalls, winds can get up to 50-60 knots very quickly. As the old saying goes, “When the wind is up, shorten down”. That means, reduce the amount of sail you have before a storm hits because it’s harder to reduce sail area once the wind pressure is up. That makes the ride more comfortable in a storm, it lessens the stress on the crew and the boat, and it helps to prevent rig failures or torn sails. Once it’s over we let the sails back out and sail fast until the next squall hits.


The economy has seen smooth sailing for the past few years. Good economic growth, low unemployment, and low-interest rates. Operational and financial complacency often sets in with management teams during good times as there is less of an urgency to run lean and efficient operations. However, recently the Federal Reserve Board has been concerned about the economy. With such a long-running period of growth, their concern is for inflation creeping up causing rising prices and reduced consumer purchasing power.


The Fed’s traditional reaction to inflation is to slow the economy by increasing short-term interbank interest rates. They have begun doing that. The danger is the economy could slow too much and go into a recession. That would result in consumer and business buyers pulling back on spending. Companies need to anticipate a drop in revenue and reduce costs and expenses before that happens. “When the wind is up, shorten down” applies to the business world just as it does to a small sailboat in the ocean in a storm. Remember, the time to reduce sails is not when the wind pressure is already up, but well before.


We have done many cost reduction studies to help healthy and troubled companies reduce costs and expenses. We understand the need to maintain spending to continue strategic focus and momentum while alternatively looking to streamline organizations and processes and reduce costs and expenses. However, costs and expenses need to be balanced with falling revenues otherwise the result is usually unsustainable cash flow deficits.


Feel free to call us to discuss how we could help your company prepare for the next storm before the wind is up. Because you can never shorten sails too soon when approaching the next storm.


Best regards,


Rich

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