Slowdown and impending recession..fear not…


If you were warned that a typhoon was heading your direction, what would you do? Do you wait complacently for the 150-kilometre-per-hour gale to hit you, or do you take pre-emptive measures and brace yourself before the storm hits you? You have heard and received evidence of the global financial crisis and economic slowdown – but what are you, your people, the industry or government doing about it?

In good economic times, you optimistically pursue growth and profitability, perhaps even spending lavishly to expand the business. Yes, in good times “even turkeys can fly” and “the strong current in the river will move your boat along without you having to paddle”. However, in poor economic tides when the strong current has abated, you hit the river bed where rocks protrude. How do you manoeuvre your enterprise in this new “business as unusual” landscape? It is during such tough times, that a management leader’s true mettle is tested.

Plan for the Worst and Work for the Best

Today, with globalisation, ubiquitous connectivity, discontinuity, economic turbulence, business slowdown and rapid changes, you must be globally aware and locally smart to deal with the unforgiving socio-economic assaults. The October World Economic Outlook (WEO) report by IMF forecasts the contraction of advanced economies in 2009, with USA shrinking 0.7% and Britain reducing by 1.3%. Many governments and private enterprises will lose revenue due to sales deceleration and growth retardation. An online report on 6 November proclaimed, “World stocks plunge on rising recession fears”.

Many organisations will lose the capacity and profitability they used to enjoy in better times. Toyota Motor Corp. expects its annual profit to dip by 68%, its lowest profit in nine years. In January 2008, Yahoo declared over 1,000 job cuts whereas in early November, Fidelity announced downsizing by 1,300 employees. All the above will accelerate the vicious cycle of the self-prophetic slowdown.

As a highly export-oriented country, Malaysia’s GDP rises enviably during strong global economic growth. However, the export knife cuts both ways – when the global economy turns bad, we are more severely affected as we rely heavily on foreign trade and payment. Learning from the 1997 financial crisis, let us move quickly to take preparatory measures, be resilient and opportunistic.

Here are some management insights that good management leaders should take cognizance of. Even if the storm fizzles out, what have you got to lose in gaining a better handle of your business?

Management Insights – What should we DO?

  • Do a reality check. Prepare your business; manage people’s mindsets by articulating the implications of an impending economic slowdown. Expect the worst but work for the best.
  • Do a critical review of your business model and financial statements. Examine the strengths and weaknesses of all components of your financial statements – P&L Statement for revenue enhancement and cost reduction, Balance Sheet for asset maximisation and fundability, Cash Flow Statement and cash generation for effective and efficient fund management, cash availability and working capital for “time to live”; provide customers trading discounts and give suppliers confidence.
  • Do build up cash reserves. Expeditiously collect all outstanding receivables to free up your assets to build up cash. Cash is king in times of recession.
  • Do a thorough review of your fundability. Ascertain how long your financial resources will last based on your expenditure amid a business decrease. Establish your fundability – how much credit and liquid assets can you raise to fund your operations? Seize opportunistic buys. Be on good terms with bankers and funders!
  • Do be prudent with big expansion plans and capital expenditure. Long-term expansion projects and substantial capital expenditure will drain your internal capability and resources if you are heavily geared. However, don’t overlook opportunistic ventures and bargains which emerge in tough times.
  • Do more with your existing customers. Engage customers who have patronised you well over the years rather than hotly pursue new customers whose credit worthiness and trustworthiness are untested.
  • Do evaluate your people and talents. Continue to nurture and encourage competent workers who will ride with you through the storm. Get serious with mere passengers: shape up or ship out!
  • Do communicate. Though pessimism abounds, keep your people positive. Calmly focus on your core competencies. This is also a good opportunity for continuous training and development to poise yourselves for the next take-off.
  • Do maintain your sense of propriety and integrity. Be extra alert – facing bad times doesn’t mean making hasty, irrational decisions.

And what are the DON’T’s?

  1. Don’t be overly pessimistic and irrational. This will unnecessarily paralyse you. If you have built internal strength in your organisation, it will carry you through the tough times.
  2. Don’t be complacent and blaming. Expect the worst scenario but work your best. Don’t blame externalities which you cannot control; act on what you can influence. Learn to be grateful. This is a good survival mindset in an economic slowdown.
  3. Don’t be too adventurous. Be prudent; don’t recklessly undertake excessive initiatives that will drain you financially, mentally and physically if they become stuck.
  4. Don’t take the big order that will “kill” you. It is tempting to accept that big order (bait) during a slowdown. Don’t be seduced into accepting large orders but beware of unscrupulous parties who lure susceptible SMEs into deceptively lucrative deals.
  5. Don’t take on big projects you can’t afford. Unless you have deep financial reserves, don’t execute projects that may exhaust your resources prematurely.
  6. Don’t lose interest in your business. You will be taxed to the eyeballs but as management leaders, you must turn on the light at work everyday, otherwise everyone remains in the dark. So light up the way!
  7. Don’t take your eyes off the business. Be at ground zero to maintain full control and stewardship of your organisation. Work hard alongside your people, underscoring the urgency at hand.
  8. Don’t be distracted by extraneous, non-productive matters. Resist speculations that can throw you off-focus, as the saying goes, “When you’re up to your armpits fighting away crocodiles, you forget you were there in first place to drain the swamp.”

Remedies in the worst case

  1. If the downturn is prolonged, get leaner to extend your survival period. You can reduce salaries, outsource non-core activities and trim expenditures; cut costs selectively rather than across-the-board.
  2. Scrutinise your existing workforce. As a last resort, offer voluntary separation or downsize. This may be a good time to shed poor performers, but you also risk losing talented people.
  3. Preserve core team members, usually about 20 percent of your employees, who are truly instrumental to organisational success. Support them well to strengthen their allegiance.
  4. Exercise your fundability; get your partner banks to grant additional facilities to continue funding your operations.
  5. Dispose your less critical assets or lease them out to generate more cash.
  6. Review and adapt your business model. Remember when your business was small and growing? Re-enact and operate on that modest scale.
  7. Seek sound professional advice in legal, financial and strategic development as you may not be able to see the solution (“forest”) if you are too close to the problem (“trees”).
  8. When all other survival options have been exhausted, explore mergers and acquisitions, reverse-in, sale of business or closure to cut losses.

Every Cloud has a Silver Lining

In difficult times, the main challenge is survival. Bad times don’t last forever and often make people and companies stronger. In the economic rain, many can still find new fortune and success, so be ready to seize the opportunities that others may miss due to their complacency and lack of determination to brave the economic storm.

Posted by Alex Wong CPA Australia Melbourne University, Australia

In Tune specialises in finance and accounting outsourcing, human resource (HR) outsourcing to SME business owners;that traditionally cannot afford professional services which they now can at a fraction of the cost less the headache; so that they have more time to focus on the business operations that matters to them.

Why hire an executive when you can now get at least one qualified professional with an executive at less than an executive pay?

Tags: , , , ,

No comments yet.

Leave your comment