Unlike 2008 which had early warning signs which allowed us to prepare, the current meltdown is out of nowhere and not based initially on economic indicators. The world has been rapidly through into chaos and we are moving if not in a full-blown recession (sadly heading towards depression). This is not the place to discuss macro economics and government intervention, but instead to focus on the lessons we learned for the “great recession” of 2008.
As a business owner, here are somethings we learned:
- Scale down quick.
- Do not preserve your full operations and business as usual. Unfortunately, difficult times require difficult decisions and actions. Read the “Hard thing about hard things” by Ben Horowitz for inspiration and ideas. This might take on many forms from layoffs to stopping some lines of business but doing nothing or too little can be catastrophic.
- Preserve Capital
- Cash is king. It is not the time to spend your reserves on maintaining the status quo or retaining your work force for when the business returns. Unfortunately, the recovery will be more gradual than we expect which will be the time we need to rebuild.
- Don’t rely on bankers. As with every crisis we expect the lensing markets to evaluate and borrowing to be difficult. Hopefully, we learned our lesson last time that too much leverage is not a good thing. Renegotiate where possible and know when to walk away.
- Do not make 2020 tax payments. Stop your 2020 estimated tax payments. You might need to make the payments next year, but for the time being it provides a very low interest short term access to capital.
- Be opportunistic. A lot of money is made in down markets by buying when everyone else is panicking and in crisis. Hopefully, we have been exercising good financial disciplines during the good times to provide us with the necessary capital to buy when the markets look the worse.
- Model, model, model
- I cannot over emphasize the importance of developing strong, dynamic financial models to help you manage through these tough times. Technology has advanced to the level that make the development of these quick and accurate. No one likes spending money on consultants particularly during the down times, but seasoned professionals like ourselves can provide significant value and help avoid catastrophic results.
- Decline is not the time to return to gut management. Develop a plan quickly, implement, monitor, refine and repeat. Analytics and a level head need to be at the center of your strategy not emotional reactions.
We are here to help during these down times. We have a proven track record of helping businesses manage through the business life cycle. Unfortunately, decline is part of that cycle and we have extensive experience on what works and what doesn’t. Please do not hesitate to contact us to discuss your specific situation and how we can help.