Posted in practice on July 5, 2016 3:01 pm EDT

7 Strategic Moves to Survive an Economic Downturn

Thinking ahead -- and being ready in case the economy falters in the future -- can save your business and your peace of mind.


 

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TAGS: aec, business, economics, management,

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By Cathy Hutchison

If you are doing great work, investing in your people, and serving your clients’ highest goals, then you will be growing your business. Right?

Not always.

We don’t control all of the success factors in the marketplace, and many times how well we succeed or fail is largely dependent on the economic climate in which we operate. While firms can be strategic about winning work, the volume of that work can be impacted by factors like conservatism of an election year, a global economic crisis, disruptive technology, or simply a new competitor entering the marketplace.

Here are seven strategies to put in place during the good years to protect yourself from a volatile economic climate:

1. Manage profitability.

Michael Evans, contributor for Forbes.com writes, “Most companies have a relatively narrow margin for error. A 10% decline in revenue could wipe out the entire bottom line of your company. Having a contingency plan to produce marginal, short-term profit despite a drop in revenues can make all the difference.” Evans suggests strategies such as developing multiple forecasts based on optimistic, realistic and worst-case revenue scenarios and to make sure that your top managers understand the contingency plans and are ready to act quickly if revenues decline.

2. Find your “canary in the coal mine.”

Miners often carried canaries in cages down into the mines because if there were a gas leak, the canary would stop singing, alerting the miner to the danger of fumes. Determining the appropriate “canaries” for your business can make a big difference in your response time. Research by the Urban Land Institute (ULI), friends in the financial sector, a look at what is happening with the companies upstream from you, and even just keeping a tight watch on your own backlog can be an effective early-warning system.

3. Diversify when times are good.

Downturns rarely hit all sectors equally, so having a mixed client or service base can go a long way to protecting your firm when an economic crisis hits. Your business model will drive what paths of diversification are open to you, but essentially, you can diversify based on geography, adding new clients in different sectors, or selling new services to existing clients.

If you’ve been thinking about expanding your reach, now is the time to begin planning for it. Doing the prep work of getting introduced to new relationships or making strategic hires to add a service is best done when there is money in the bank.

4. Tighten your go/no-go.

Most firms have a formal go/no-go procedure that they use to determine if they should chase a project. The go/no-go protocol is designed to protect firms from misaligned projects that will disproportionately drain resources without turning a profit.

Craig Janssen, managing director of Dallas-area Idibri, shares, “In good times you have the ability to be focused and only say yes to good work. As these relationships and contracts can lead to multi-year binding commitments, make sure they are good commitments. It’s a great thing to go into a recession with a backlog of good work. It really sucks to go into a recession with work that is not profitable.” Take time to revisit your policy to safeguard your firm.

5. Treat your infrastructure like a bank. Make frequent deposits.

Keeping office technology current while times are good is as tangible as saving money in the bank. If you invest in ensuring that your infrastructure is up-to-date when cash is flowing, then it won’t suffer too badly when the cash flow is tight and you can’t prioritize those expenditures. By staying current, you can buy as much as two years lag time on [an] investment if needed.

6. Have strategic hiring and retention practices.

… the first rule of the Pony Express is that if you want to deliver mail, [you must] care for the ponies…. Take care of the ponies so you can retain them.

We all know the drill. People get hired in good times and laid off in bad. In firm leadership, there are few things more painful than having to sit in front of someone and tell them they no longer have a place at your company. This is why firms proactively invest in having strategic hiring and retention practices—so that they don’t have to have those conversations.

Senior Pastor Todd Wagner [of Watermark Community Church in Dallas] once quipped that the first rule of the Pony Express is that if you want to deliver mail, [you must] care for the ponies. If your staff feels undervalued in times of plenty, just think of how they will feel in times of scarcity. Take care of the ponies so you can retain them.

7. Keep in mind, it’s not the end of the world.

Sam Becker of “Money & Career Cheat Sheet” writes, “On average, recessions hit the U.S. business cycle once every five years or six years. According to records from the National Bureau of Economic Research and the Federal Reserve, the average business cycle lasts 67 months in total—57 of them in expansion, and 10 in recession. That’s for data ranging back to the 1940s, all the way up to 2007. Going even further back, there have been 32 recessions since the mid-1850s.”

Economic downturns happen. We know we will survive, but with a little strategic planning, we might even thrive.

 

 

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