Tips for Surviving a Recession

(Jan. 22, 2008) Chicago, IL. - The weakest holiday sales season the retail industry has seen in years, the recent report on rising unemployment and a falling stock market may be the final blows to push the U.S. economy into a recession.  Even before these events, the credit crunch, sub-prime crisis and record setting oil prices had slowed economic growth.  Maintaining profitability, or in some cases viability, under these circumstances is a difficult challenge for businesses.  

To help weather the storm during this economic downturn, Bill Lenhart, a partner at BDO Consulting suggests:

• Take Fast and Decisive Action. The administrative and operational cost structure of all companies tends to grow disproportionately in good times, without a corresponding reduction when the economy and business volume slows. In order to maintain liquidity and manage debt, management must quickly determine core needs and shed excess costs.   
• Develop a Comprehensive Approach. A comprehensive plan will include, at a minimum, implementing a cost reduction program, improving inventory controls, enhancing purchasing procedures, accelerating cash flow and extending cash retention. Today’s business environment calls for fine tuning the entire business enterprise and making sure all the components work effectively together to maximize value. 
• Manage Costs with Targeted and Timely Reporting. Too often, businesses react to information two to three weeks after month-end. Reacting to changes in this business environment requires timely information for gross margin management, product line profitability analysis and administrative cost controls. With today’s computer systems, data can be collected and reported on a daily basis, allowing management the ability to react in real-time to deteriorating gross margins and unexpected market changes.  
• Manage Operating Results Proactively. More than ever, management needs to proactively manage the operating results. Some unprofitable customers may need to be pruned or contracts renegotiated, certain low margin products may need to be shed or re-priced, and specific operating costs need to be closely monitored.  
• Conduct an Internal Assessment for Possible Restructuring. Sometimes it is essential to step back from the day-to-day and ask what adjustments are needed to correspond to the changing business environment. Is it time to consolidate facilities, make the business more scalable through outsourcing of functions, eliminate redundancies in operations and headcount, close selected store locations, or sell off excess assets? Whatever the actions determined, you need to build a comprehensive work plan, establish accountabilities and set a timeline for implementation.

Bill Lenhart, a Partner at BDO Consulting. He can be reached at blenhart@bdo.com. BDO Consulting is a business line of BDO Seidman, LLP, one of the nation’s leading professional service firms. BDO Consulting provides litigation, investigation, restructuring and risk advisory services to major corporations, law firms, insurance companies, financial services entities and government organizations.