In times of economic downturn, debt is the enemy. Do a pre-emptive workout before its too late.

When downward economic pressure is foreseeable, based on projections, trends, or simple reality, whatever the intervening factors may be causing or likely to cause decreased revenues and reduced profitability, the first thing one should be considering is decreasing overhead, payroll, and other cash preserving  and protecting strategies.

Of course the best defense is a strong offense thus attempting to increase revenues in the face of a downturn is always a daunting task but one which can return valuable dividends if implemented effectively, but that is another strategy discussed elsewhere in this blog.

However the one issue, the 800 lb. gorilla in the room that everyone ignores, is the debt you cary, as presumably this is either a fixed liability issue which simply needs to be paid no matter what, or more then likely old payables and tapped out credit card debt, or 941 unpaid taxes, all clouds over your financial control and requiring debt service. Not so.

One consideration is a pre-emptive workout, designed to prevent disaster before it occurs. This may include restructuring debt, negotiating for a reduced interest rate, or longer payback terms.

Both strategies having some positive impact for certain, but in the overall scope of financial matters, the net results of either effort is marginal at best and certainly will not prevent further erosion if things get worse.

What remains? A pre-emptive workout, assuming the crash is near and wanting to prepare for it by reducing principle debt as much as possible now while you have some financial strength and options, before you are backed into a corner with no options or alternatives or at least fewer. This simply requires a clear evaluation of your condition and before you go into default, restructure your debt and protect your assets as if you were in foreclosure.

This is more like shutting the barn door and therefore protecting the horse before he gets out of the barn, something few business men dare consider as they are far too busy dealing with real time day to day emergencies and issues. This requires a different approach, perhaps recognizing a pending issue and declaring its existence before it crashes and you burn.

The problem is a workout is based on current disaster that leaves few alternatives and limited exit strategies, while a pre-emptive adjustment carries no such weight but may be more valuable and important. Its a more challenging strategy requiring more creativity and a different view towards restating your financial condition and circumstances. It may even require your expanding a current small problem or forseeing, identifying and resolving a pending issue not yet ripe but clearly identifiable.

Declining asset values, stretched receivables, growing payables, longer payable terms, maxing out credit cards, failure to reduce credit lines, reduced revenues, reduced profitability, reduced or canceled marketing efforts,  lower inventories, are all key indicators telling you disaster is on the way. Do you wait till your doors are closed or the inventories are down to zero, or the cash is gone and the payables are over 90 days old to react?

Most business owners do wait, far too long, avoidance is the word, ignoring the signals until forced to react and then you are at your weakest point and then options are severely limited.

Here is my call to action…pay careful attention to your key indicators, especially in times of downturn and when they are all lining up telling you, you are headed for dangerous downturn, react. Plan your early self protecting workouts designed to reduce debt and protect assets. It can be done, it takes a little more creativity, but the facts are there and the plan can be derived and developed. In fact if identified early enough and a pro-active approach is established, far more effective workout strategies can be designed and implemented, in advance of pending disaster.

In short do not wait for disaster to strike before you prepare for it. Check which direction the wind is blowing and if its heading south, prepare to batten the hatches down and prepare workout strategies so you will be better able to weather the storm and survive strong, lean and mean ready to do business in the midst of a downturn.

The smart survive. The smarter flourish in a declining market. The smartest prepare.

Which are you?

Call me for some further discussion regarding what you can do to be the smartest. 413-549-2966.