I captain our sailboat between the Caribbean and the Northeast U.S. each year with stops in Bermuda. These are around 1,700-mile open-ocean passages. Before departing on any leg, I carefully check the pre-departure weather forecast, and we wait for good weather windows if necessary. Nevertheless, there are always unforecast squalls out there. Or, we might encounter fast-moving storms or low-pressure systems that out-pace the forecasts which are only accurate for about three days out.
If we face bad weather closing in, it is important to know how to prepare the boat and crew. With some early warning, we can make preparations to avoid or minimize damage and discomfort. For example, we might stow loose gear, prepare hot meals ahead of time, shorten the sails, prepare to don our foul weather gear, break out the seasickness meds, etc. We might have some discomfort, but at least we’ll ride it out as best we can. Then we move on and enjoy our passage once the bad weather passes.
In today’s economic climate we’ve seen lots of fair weather and following seas. The economy is robust, and unemployment levels are down. For many management teams, the bad times of the Great Recession are a distant memory. But history indicates economies are cyclical. It is a certainty there will be another recession, and more to follow. What is not known is when the next one will come and how deep or long it will last. That leads to some questions that you should be asking:
- “Do we have an early warning system to forecast a downturn?”
- “What would we do to prepare for a recession?”
Sales will certainly be in decline and, as a result, certain costs or expenses ramped up in the good times will need to be rationalized and reduced or eliminated. Costly off-site meetings, holiday parties, bonuses, unnecessary CapEx projects, unnecessary personnel will all be considered. People will need to be more creative to do more or the same with less fundings; e.g., still throwing a nice holiday party at a less costly venue. Here are some of the typical questions that arise as things start going South:
- “How can we reduce costs through process improvements?”
- “How do we reduce our healthcare expenditures?”
- “Can we cut our freight costs while still shipping on time?”
- “Should we proceed with that IT project or can we defer it?”
- “Are our administrative expenses in line with other similar companies?”
There will also be a need for more rigorous Cash Controls and the availability of Lines of Credit that may be necessary to see the Company through peaks and valleys of cash collections when key customers are also struggling to make payments.
- “Do we have a Cash Requirements Forecast to help us manage cash?”
- “Do we have a line of credit that we can draw down on, when necessary?”
Is your company prepared or preparing now for the next storm? Does it have the necessary reporting tools in place to provide an early warning of a downturn? Is it pairing back its costs and expenses now to reserve its financial resources to see it through the next recession? Is it putting in place cash controls and lines of credit it will need?
Contact us if you need help preparing your Company for the next recession. We can help with process improvement and cost reduction projects or improving controls to manage cash better. Better now, than before the wind kicks up. Meanwhile, wishing you fair winds and following seas – for as long as that lasts.