Walter & Shuffain, P.C.

How To "Recession-Proof" Your Company:
The Top 10 List

1. Forget profits, focus on cash flow.

Profit is a function of accounting decisions whereas cash flow is the real world. Cash flow is the vital lubricant of money machines. Keep revenues moving.

2. Accept the dilution of equity sales.

Owning a larger percentage of a smaller business can be satisfying but in tough times it is also a luxury many company owner/managers can't afford. If money becomes and remains difficult to borrow then selling equity, even at less than is believed to be the fair value, always based upon predicted events, may be the best or possibly only way to go. Without the money the predicted events may not be achievable.

3. If customers start using your company as a bank, profit by charging interest.

The game is to substitute sources of capital. The bigger the company the better they can play the game of delayed payments. If your company is going to be supplying credit then charge at least what you are paying for money - otherwise it is just a matter of your reducing the price of your products.

4. To the extent possible and fair use your suppliers as a lenders.

Try to extend payments as much as possible, even paying more for the products purchased as the difference is but interest on loans you are not able to obtain elsewhere.

5. Sacrifice rate of growth for profit margin preservation.

Growing less fast and maintaining profit margin is a decision which is industry and position therein dependent as there is also a need for sufficient revenue growth to maintain cash flow. Product pricing is perhaps one of the most critical decision areas not focused upon enough by many managements.

6. Reduce cost of product creation.

Focus on cost cutting with a ferocity not as necessary during times when capital is available on more attractive terms. Make the hard decisions assuming the situation isn't temporary. There is a need in cash short periods to curtail non-critical product development efforts. Invention, innovation and new product development are expensive and necessary for growth but when the wolf is at the door let's not be planning vacations.

7. Shorten delivery schedules.

Arrange production so as to be able to have less inventory. Some customer deliveries may have to be delayed, as a batch production basis may be more cost effective.

8. Reduce inventories.

Inventories are dead money and along with better collection of receivables the quickest place to create cash.

9. Reduce fixed versus contract staff.

Flexibility becomes critical in periods of capital stress and outsourcing and using contract personnel provides the necessary flexibility.

10. Assume the worst and concentrate on staying in the game.

It is fine to believe and tell those around you that "this too shall pass", but what if the problem period lasts longer than anticipated and past the point of your resource availability? There is a difference between losing innings, quarters or sets and losing the game. Staying in the game has to be the number one objective of management.