The Great Lunch Eating

Let’s consider two real life scenarios:    

1. Racecar drivers brake going into a turn and then accelerate coming out of the turn.   

1. Most business owners don’t hit the brakes until halfway into a recession (turn) and then ride the brakes into the recovery.    In fact business failures peak 12-months after the stock market bottoms. 

 So, let’s say that the stock market has bottomed.   The best run businesses will start accelerating now (and they’ll have the cash to do this).   Caroline Kennedy reports that many of the better companies in our industry are doing just that, investing out of the turn.  Twelve months from now they’ll have hot new product hitting the market while competitors are floundering.   American legend tells us that most fortunes are established during a downturn and this is exactly why. 

Unfortunately, many companies have burned up cash reserves and weakened their balance sheet over the past 18 months trying to grow sales.   Lord knows I love that optimism and it’s the hallmark trait of an entrepreneur.  It’s also the reason entrepreneurs die like lemmings in recessions – they don’t know how to manage cash.

So, the conclusion is simple enough; be one of the smart CEO’s and start investing into the future now and don’t be one of the peak business failures 12 months later.   All you need is a strong balance sheet and plentiful cash reserves.  Strong management and a plan will help but are less critical than the means to pay for it. 

So, the question is; How have you handled this recession?   Economists tell us that the recession officially started near the end of 2007.  Have you been riding the brakes since then?   Have you been accumulating cash during that time, waiting to make your move into the rising tide?   Or are you exhausted and poor?  

The coming recovery will be “The Great Lunch Eating” in our industry.  Many companies will eat the others’ lunch.
 

Take stock of where you are on this continuum.   Your fate is not set and you can still make positive changes.  With a good plan you can improve your cash situation this week (seriously)!    The recovery may be slower than we wish and this gives you time to brake now and accelerate in 6 months – you may only need a proven plan and some fresh energy to make that leap.

There is a simple formula to figure out how much cash you’ll need coming out of a recession.  I will cover this in a later blog but feel free to contact me if you’re impatient.    www.DorsetPartners.com

Jeff Sands is a Director with Dorset Partners, a firm specializing in challenging corporate revitalizations.