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News | Dealing With The Recession
January 2009
How bad is the recession going to be? What should businesses do about it?
Here is what we have been telling clients since very early in the recession:
- The depth and length of this recession will be greater than anything any of us has experienced in our business lives.
- Therefore, nothing in our experience fully prepares us for what to expect or how to respond to it.
- If you think it hasn't affected your business as deeply as it has others, it isn't because it won't. It just hasn't happened yet.
- The recession was caused by loss of value of assets held by banks, resulting reduction in their equity and diminished ability and willingness to lend. Until this problem is resolved, the recession won't go away. It won't be easy or quick to resolve.
- Peter Drucker said that the first obligation of any business is to survive.
- To survive in this environment, it is essential to remember that cash is king. This includes both internally generated cash flow and access to outside capital.
- All capital and operating expenditures that aren't essential to stay in business or don't have a very quick payback should be delayed or cancelled.
- Keep very close to your bank. Keep them fully informed. Avoid surprises. If available and affordable, increase your line of credit to more than you expect to need in a worst case scenario.
- No matter how good your relationship with your bank, don't assume that changes in their business and ownership wouldn't leave them less willing and able to lend than they are now. Begin cultivating relationships with new banks to have backups available, just in case they are needed.
- A recession is a business cycle. Business cycles always end. Things will get better. It is essential to know not just how to survive but how to prosper when the recession ends.
- A recession is a terrible thing to waste. Those with deep pockets will be presented with once in a lifetime opportunities to compete, hire, invest and acquire at bargain prices, and at the expense of their financially weaker competitors.
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