By Gene Russell, Manex President and CEO
Is a recession here or is it coming? For the purposes of this week’s blog, let’s just say it doesn’t matter. Getting a better grip on your business is always a good idea. How does one lose or loosen their grip? You get tired, bored, or complacent just like in the physical world. If you are doing chin-ups you drop to the ground. If you are picking up weights, you drop them to the floor, perhaps on your toes. If you sit in your office and let the sales team handle every client, you lose your grip on your revenue engine and in a broader sense your early warning system on the market. The same applies to your vendors, your employees, cost models, AP, ERP systems, plant layout, continuous improvement, machine life, and maintenance.
Now is a great time to get a grip on everything. A tight grip. Recommit yourself to understanding what you may need to get through one or two recessions. What are your financial reserves? Where would you cut if you lost specific clients or areas of business? Can you model those scenarios with confidence? How is your banker doing? Review your bank covenants. If you lose your low-interest bank line, where will you go and what will the interest be? Should you put together a list of potential alternative bank lenders such as asset-based lenders? How does that model into your financials? Workforce has become one of the largest gating factors to your growth in good times, what can you do to keep from losing key people?
My “tighten your grip” checklist includes:
- Get involved with your clients. Everyone sells but don’t alarm a client with a sudden visit. Have a reason and a plan
- Be known to your key vendors. Do not delegate the entire relationship.
- Think twice about new big audacious investments and other risks.
- Do a deep dive on all your financial statements.
- Pay close attention to your AR & AP.
- Look at your cash balance.
- If you have historical records from previous recession(s), look at how it impacted your P&L and balance sheet.
- Model potential impacts of one or more future recessions.
- Look at your market sectors served that may be the hardest hit.
- Model key cost cuts you would make in order of priority and ability.
- Increase your (C-level) presence with key clients.
- Make a list of alternatives to your existing bank.
- Secure your financing early.
- Should you secure financing before you need it?
- Revisit your cost models and ERP assumptions
- Explore new areas of continuous improvement on the plant floor and in the office.
- Invest in new adjacent markets that will be least affected by a recession.
- Workforce, workforce, workforce. Do not spook your workforce. What does a 15% to 25% (or more) reduction in business look like?
- Cross train employees.
- Take care of the critical skills.
- Look for flexibility.
- Use any extra time for Kaizen improvements.
Can you recession-proof your business? No. Can you be prepared and have alternative choices at hand that you have analyzed and understand? Absolutely. A short recession will obviously be less impactful than a long recession. However, it could make a direct hit. Get a grip now.
Have you managed through a major downturn? What can you add to the conversation and experience? Contact me directly at email@example.com