What Goes Up, Must Eventually Come Down

Posted: April 11, 2019 - Blog, Executive Focus

With 24/7 media coverage and so many choices to gather information we are not lacking for options when trying to forecast economic activity.  The largest discrepancy in these forecasts is the timing of the next recession.  We are in the midst of the longest running growth period and as we all know business is cyclical – thus it has its ups and downs and we will see a recession at some point.  I have seen predictions of a recession as early as late 2020 to as late as 2022-23.  Keep in mind that the technical definition of a recession is two consecutive quarters of negative GDP – therefore we usually do not officially have a recession until 6-9 months after it begins, thus it is important to monitor your company’s internal metrics closely.  The one consensus seems to be that we are looking at a slower growth environment in the current year compared to previous years.  So what changes should we be making in how we manage the business given the anticipated slower revenue growth?

DON’TS

  1. Do not reduce your efforts in the new product development area. I can tell you from experience with my clients through “The Great Recession” those that weathered the storm the best were those that continued to aggressively introduce new products.
  2. Communication – do not keep the employees in the dark. Use visualization tools to depict where the company has had successes and where the company feels the challenges will be going forward.  I have seen many examples where the best improvement ideas come from the manufacturing or distribution floor.
  3. Training – do not let up on training, particularly in the area of cross training. Many times revenue growth will slow in one industry that you sell into but not another.  Through the cross training of employees you will become more flexible in adapting to these changes.

DO’S

  1. When considering capital expenditures give further thought to whether these will be financed with bank debt or funded from operations. Also implement a stringent payback period target where appropriate.
  2. Aggressively go after selling price increases to customers – the labor market is tight and commodity prices have increased – if you can’t get price increases now you certainly will have a hard time justifying them as the economy softens.
  3. Increase face time with your major customers so that you are in tune with their production requirements on a timely basis. Timely information is your greatest tool to forecast production in the short term (1-6 months).
  4. Continue promoting your brand – especially on social media which is a relatively low cost vehicle.

Information and preparation are the keys to successfully navigating the changes in the business environment.  Some variables are out of your control but a clear reading of those within your control give you a leg up on the competition.

Dennis Pierce

Dennis Pierce joined CDH in December 2015 bringing nearly 40 years of experience with him. As management consulting director, Dennis is responsible for providing ongoing accountability coaching regarding finance and operations to CDH clients. https://cdhcpa.wpengine.com