Recession check list

Wednesday, 06 January 2010 01:34

What's Next? At some stage - better sooner than later - companies need to move their attention away from fighting the crisis, to getting the most from a recovery. Management will need to stay focused during this transitioning stage.

Here is a list of ten pointers to help guide management through potential opportunities. Are any worth pursuing?

1. Understand The Nature of Recovery
Recovery can occur in vastly different ways, which will affect your business differently. A steady recovery over 12 months, would be different to a staggered five year rise. Look into the possibility of inflation, lowered international trade and changing currency value. Ensure all your managers know what they can expect, and how appropriate target levels can be attained when the crisis has lifted.

2. Restructure
In a weak economy, it can be easier to bring in unpopular changes and divestitures. Companies can expect more lee-way in dealing with suppliers, regulators and unions, while employees will understand the need for change. Work out how much restructuring can be done to secure the company's medium term position.

3. Ensure Your Supply Chain's Strength
A lengthy period of time spent cutting expenditure and labour can sap your company of the ability to respond to a quick pick-up in demand. You need to be able to respond, when the recession lifts, quickly and without compromising quality product or bringing back high costs. Now really is the time to work out if your supply chain has been stretched too thinly.

4. Ready Your Acquisition Target Short List
Acquisition oriented companies waiting for clear evidence that the recovery is on it's way may soon find themselves swamped by better prepared competitors and surrounded by returned valuations.

5. Make Alliances
Businesses that will look likely to come out of the recession at a competitive disadvantage can strengthen themselves by partnerships with companies in the same boat.

6. Trim The Portfolio
Divesting from previously strong businesses now may be more prudent than spending money on a leaking ship when the economy moves from bust to boom.

7. Prepare Financial Resources
Businesses may require more capital to finance new products, channels of distribution, marketing programs or acquiring new businesses. New financing does need to wait until the market has completely revived. New equity should be sourced, as well as new debt that be activated if required.

8. Take Advantage of the Buyers Market in Skill and Resources
While the competition are cutting costs through capital spending, R&D, and downsizing, hiring new professionals at prices cheaper than they have been in a long while, may be a wise investment. Research from previous down-turns indicates that the winners made a significant investment in talent, marketing, R&D, and capital in the period just before the economy rose (ie now).

9. Be Aware of Recovery's Risks
An economic turn-around is sure to bring structural changes to all facets of the economy. Management need to understand how much their company is exposed to currency or commodity price movements, the health of channels, customers, suppliers and whether they and you are prepared to deal with the high volatility that can continue even when the recovery is well underway.

10. Prepare A Response For Investors
A clear communication plan is required for investors and analysts, who'll be demanding to know what you're doing as the economy gears upwards.