"And the darkest hour, Is just before dawn." - Dedicated to the One I love, a 60s song by The Mamas & the Papas. It seems that way sometimes, doesn't it? That the darkness of an economic slowdown will never end until it swallows your business like a pelican gulping down a fish. Well relax, that's not the way it is.
It seems that way sometimes, doesn't it? That the darkness of an economic slowdown will never end until it swallows your business like a pelican gulping down a fish. Well relax, that's not the way it is. Good times follow tough times - it's inevitable. They call it the economic cycle, and it's been around since people started measuring such things. It's just as important for a business owner to plan for the coming boom, as it was for them to prepare for the recession. But when do you start? How does one know it's really over?
There are no clear, defining lines from recession to boom. It isn't like throwing on a light switch in a room. It's more of a slow, gradual dawn lighting up the eastern sky, taking its time to arrive. We want to find trends, not sudden eruptions from good to bad ... we want to go from bad to just a little less bad.
It's different this time: Sure it is, and the check's in the mail and you're my one and only. Don't believe what you hear from the economic pundits. Economics was invented to make astrology look good. In the late 50s and early 60s we had an economic boom partly based on new technologies like transistors. The "nifty fifty" stocks reigned supreme and surely it was different this time. Then along came the early 70s and the Arab oil embargo. We were going to run out of oil in eight years, they said ... it was different this time. Then we had the inflation and high interest rates of the late 80s, stock market crash of 1987, the 90s Internet boom, technology meltdown of 2000 followed by 9/11 and now the sub-prime crisis. Every downturn was followed by an economic boom and vice versa. It's never "different this time" and this is no exception. So let's start planning for the inevitable resurgence of economic growth with two questions: 1) Are we at bottom? and 2) What business steps should we take if we are entering a recovery period?
OK, let's look at the first one: Are we at the bottom? To answer that question we must first realize that it's a regional game more than a national one. Las Vegas may be in a boom while New York is in recession. As of this writing, home prices, which are one economic indicator, reflects this regional disparity. US News and World Report states in its June 3, 2008, edition that home prices are UP 11.8 percent in Mobile, Ala., and 6.7 percent in Jacksonville, Fla., from a year ago. During that same period, the Washington Business Journal's May 27, 2008, edition states the Standard & Poors/Case-Shiller Home price Index fell nationally by 14.4 percent.
So to figure out if we're in a less-bad period, (no one can find the actual, exact bottom) look locally for the signs:
- A surge in residential home sales, or at least a drop in the length of time homes stay on the market. Best bet: Speak to local realtors.
- Increase in new construction means builders are experiencing a demand that will have ripple effect on the local economy (think appliances, local building materials outlets, etc.)
- Decrease in vacant commercial properties and increase in commercial construction.
- Easier credit from local banks
- Lower interest rates for mortgages and consumer credit
- Decrease in local unemployment
- Increase in "help wanted" ads
All these signs, and more, indicate improving economic conditions locally, in your area of business, which is what matters most to you as the business owner. Once you see these positive signs, it's time to analyze your business for the right course to take.
Examine how your business did previously in times like these:
You should be using a computerized accounting system. Quickbooks is the premier one right now. If you're using an old paper system and doing your own bookkeeping, your first task is to change immediately.
If you're in a new business, this will not apply, but if you've been in business a while here's what to do:
Go to the report section of Quickbooks (or the equivalent section if you use a different system.) Examine two sections for a similar period of time:
- Sales by item summary. This will tell you what sold best for the equivalent recovery last time. Similar items will usually do well.
- Income by customer summary. Who's buying your product and services during a recovery? Is it mainly commercial clients, individuals, young, old, blue collar, professionals? This is crucial so you can target your marketing toward those clients.
Now apply the particular and unique aspect of your business to this information. Factor in changes to your market since the last boom time:
- Has technology changed? Don't stock up on VCRs when DVDs are the rage. The pace of technological change can be daunting sometimes. Be sure you're not caught using outdated technology in booming times.
- Have the demographics of your market changed? Do you have younger buyers instead of older ones, families instead of singles, industrial/commercial as opposed to individuals? Such changes in your market will require different sales strategies, pricing, inventories, etc.
- What's the competition like now? At the risk of sounding ghoulish, look around for competing business that didn't survive the recession. Move aggressively to grab the market shares of moribund competitors. Likewise, be aware of aggressive competition and match them blow-for-blow.
- What are the factors unique to your industry? Some industries thrive in recession and don't do as well in recoveries. Look to the unique aspects of your industry.
- Loosen the purse strings a tad. Now's the time to increase advertising and marketing, add to inventories, hire sales people. Be cautious, but move forward.
So there you have it, the basic steps to take advantage of the coming economic expansion. And remember, when things are looking super good and it seems like this boom will never end ... that will be the time to prepare for the next recession.
Patrick Astre, certified financial planner, enrolled agent, registered financial consultant, is an author, speaker and a tax and financial expert specializing on the economic issues of longevity. For more information, contact Patrick at (631) 744-9100 or visit www.ProsperousBoomer.com.