If there is anything certain about the market, it’s that it is uncertain. The market, however, is “cyclical” meaning history tends to and has proven to repeat itself. I attended a financial seminar shortly after the 2008 market correction. The speaker was presenting on the “How the Market is Cyclical.” During the introduction of the presentation, Time Magazine cover articles were cycling across a projection screen. The titles were things like; “The Great Recession,” “Unemployment at an all-time high,” “The War on Terror,” “The Worthless Dollar,” and “Bankrupt America.” What the audience did not realize until the end is the dates were missing on the cover articles. These were not articles from the present, as we all assumed, but all these articles were published in the 70’s.
Whether it is the Great Depression in the 30’s, The “Oil Crisis” in the 70’s, “Black Monday” in the 80’s, “The Tech Bubble” in 2000 or the “Great Recession” in 2008, an economic downturn is inevitable. For most general “investors” the remedy can be as simple as staying the course, not panicking, and allowing time to provide what is typically a quick market rebound.
Unfortunately for business owners, there is more involved and more at stake when the market corrects. Whether it is business overhead costs (rents/mortgage), employee costs (hiring/laying off), equipment, debt or employee benefits (insurance/retirement contributions) to name a few, a market correction can dramatically alter the trajectory of a business and in some cases close its doors.
So what should a business owner do to protect themselves and their business’ in the event of another market downturn? There are three important aspects to keep in mind, be aware, be lean and be balanced.
“Knowing is half the battle.” Being aware that economic downturn is inevitable and its effects alone are very important. This awareness can drive your behavior as a business owner in making educated decisions to protect yourself and your business from the pitfalls of slow times. Seek a consultant or reliable information that can provide the ability to be able to withstand the season that may come.
“The skinnier you are the faster you can move.” Re-invest in your business but also save some profits for yourself during good times. It can be very easy to get complacent especially when times are good. We often hear stories about business’ that have failed, that go something like “man, we were printing money back then, no one saw it coming.” Liquid deferred compensation plans and cash on hand accounts are a good way to be able to be flexible and stay afloat in tough times.
“The right answer is usually somewhere in the middle.” Work towards a healthy balance sheet. For most business’ debt and financial leverage is a necessary evil. When times are good and profits are high it is very easy as a business owner striving for growth to invest back in the business. This is something you should do, but be mindful that the dollars you spend are supported by dollars you are also saving. Align yourself with people who can provide you with ideas of how to best apply your debts so that you have flexibility and options if you need to adjust.
Running a business can be one of the most difficult and yet rewarding things you can do. As a business owner, you are responsible for the many things it takes to running your business successfully day to day, while at the same time avoiding a litany of pitfalls like economic downturn. It is important that you empower yourself with education and specific strategies tailored to protect you, your business and in many cases the employees whose livelihood relies upon the success of that business.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
This article is written by Ronald Thompson II.