February 11th, 2013
Avoid the Risk of Failure During a Recovery
Recent economic commentators have raised what may seem like a strange notion. They believe there is a high risk of businesses failing as the economy begins to recover. There is no doubt that a risk of failure exists in the midst of a recovery. Many companies will have stretched all of their resources to the absolute breaking point to survive the downturn. They may have shed dozens or hundreds of workers and even shuttered plants. They may have borrowed up to the limit at their current bank and their trade payables may be hounding them for payment. In an environment like that, a surge of new business can take a new company into the deck as they are unable to finance and, therefore, to execute on the growth for which they’ve waited so long.
We encourage every company to conduct a ‘lender lifeboat drill’ as the recovery continues to gain strength. Are you at your current lending limit? If you’re near your limit and your lender won’t commit to increase your loan facility, it’s critical to begin a search for a new lender right away. The companies that stumble in a recovery are those that fail to correctly foresee the limitations of their current capital arrangements. Conduct pro forma projections of recovering revenues and if you don’t know how you would finance that growth, start searching for capital now.
The good news is that the banks are lending again and seeking deals in the building products industry.
Another key area where companies run into trouble in a recovery is in the human resources area. In the downturn, many companies eliminate dozens of positions. Depending on the severity of the cuts, even seasoned workers may be involved. In a recovery, companies will find that many of these workers have moved on to other jobs and can’t be lured back. Others that were close enough to retirement may now choose not to reenter the workforce. The same is true of executive and sales positions. Companies should look at their personnel roster and game out different growth scenarios, focusing on whether they have all the team members needed to thrive in a strong growth environment.
Another aspect to consider is the emphasis your sales and marketing professionals place on your various products and customers. In the past few years, many companies have focused all of their efforts on their remodeling customers. Now is the time to pay increased attention to your builder customers and wholesalers that sell to builders. These companies are out building homes again and companies that fail to reallocate the proper portion of their marketing efforts to these companies will see competitors win business that used to be theirs.