Preparing for the Recovery
I am pleased to announce that The Great Recession will soon end. The consumer will come out of hiding and stores will start moving wall art off their shelves. The sun will shine and our retirement accounts will steadily ratchet upwards in value.
Without a doubt, this is true. Recovery is the natural order of things and it is our reward for having made it through the dark times.
The great question for everyone right now should be; Are you ready for the recovery?
Expanding into a recovery takes energy and leadership but it also takes money. And the money part is what often sinks recovering businesses.
Consider two companies, both have exciting new product ideas;
One company has squirreled away cash during the downturn and hits the gas while the economy is recovering. They invest in new products with exciting new designs, clever mediums and sharp prices. They hire new talent, advertise and put money behind their new product introductions. They upgrade their sales team, focus on brand building and product penetration and create their own momentum in a market starved for good news. The initial inventory turns quickly and re-orders are placed right away.
The other company has a great product idea and a fair shot but no cash to invest. They have just enough for some inventory but can’t go the extra distance for knock-out design. They have no money for advertising or PR. They can’t afford to add in or upgrade their talent and they try to get by with emails because they can’t afford a direct mail campaign. They also let the recession slip by without developing an in-house sales team so they come out of the gate flat footed and dull. Old, stale and boring in a market starved for good news. It’s not their fault; they just don’t have any money to invest. The recession was deeper and longer than anyone expected.
These are both great companies with solid management and market savvy. But you can see the difference money will make coming out of a recession. Recoveries are the dynamic times when fortunes shift. Fortunes rarely shift when everyone is hunkered down and they rarely shift during the irrational exuberance of a bubble. Don’t believe me – the stock market leapt 30% this Spring. Think about how much money was just made by investors who rushed in with cash and confidence in March.
So, what will it take to thrive in the recovery? For most companies the formula is simple enough… approximately 6% - 10% of revenues. This means that a $10mm business should be hoarding $600,000 - $1mm in a Recovery Fund ready to invest when the economy recovers. Half that money would go into exciting new product and the other half into a strong sales and marketing effort.
So here’s the question; In this recession are you surviving to win or simply to survive? Do you have a cash based operating plan that will pay all your bills and allow you to squirrel away 10% of annual revenues? A few of your competitors do and they are hoping that you’ve lost track of the future while clinging to the urgency of today.
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Jeff Sands is a Director with Dorset Partners LLC, (www.DorsetPartners.com), an advisory firm specializing in corporate turnarounds, financial restructuring, revenue revitalization and profit improvements. The team at Dorset Partners has guided hundreds of business turnarounds in dozens of industries over the past 35 years. Much of this knowledge is outlined in the recently published Turnaround Roadmap™ which is available as a Free download on their website.
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