Friday, January 25, 2008

Guard Against a Potential Recession

I’m not an alarmist by nature so don’t take this as an ominous prediction, it’s not. I wanted to take a minute just to remind everyone of what may appear to be obvious. There is a lot of talk about a potential recession. The old adage is that a recession is when your neighbor loses his job and a depression is when you lose yours. Now I don’t expect either in the near future but prudence says that we should “expect the best but prepare for the worst” So let’s talk about preparing for the worst.

Have you started contingency planning for a slowdown in the economy? Do you understand what that might mean specifically for your company? If you were in the real estate or construction industry you already know. Start taking action to mitigate the potential damage.

Here are some ideas…

Look at your pricing policies to determine if there is a way of assuring future revenue from sales made now. There may be a way of accelerating the recognition of that revenue later if you need it. Remember if you have to discount a deal, always try to discount the one-time products or services over the recurring. If you sell professional service as part of your offering, try to discount those aspects that will only happen once as opposed to your overall billing rate. A discount to your billing rate may last forever.

Take a good look at your pipeline for prospects that might not have the ability to pay in a downturn. The decision concerning what to do is an individual issue. Protect yourself from incurring expenses that you may not be able to collect on down the road.

Don’t start projects that fall into the “nice to have” category both internally and externally. An updated document viewer my make your product more attractive in the long run, but if it isn’t going to pay for itself in the short run consider putting it off until you’re sure the economy is in your favor.

People are your most important asset. If you gain a reputation of jettisoning employees it will be hard to replace them with quality people later on. Make this your last alternative. If the downturn is short lived, the severance pay, plus new hire cost, will eat all your potential savings.

This is a really good time to have conversations with your best customers. Start putting together a contingency plan with them. It will pay overwhelming dividends down the road. It might be a time to accelerate projects while the money is available. It’s also the best time to put together a great business case on why your project should be a priority during the downturn. Proactive thinking beat reactive thinking any day.

Bottom line is; don’t let it happen to you. You have an opportunity to do something about it now. Don’t get so caught up in the day-to-day that you leave yourself exposed. If it doesn’t happen, you will have left yourself in a better position for what will happen.

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