Inflation, the strong Canadian dollar, a weakened US economy and a shrinking Canadian one, dropping consumer confidence, job losses in the manufacturing sector: it’s getting tough out there for Canadian businesses. How many of them are prepared and equipped to weather the storm, given that only a year ago, Canada’s private companies were coasting on the strength of the Canadian economy, feeling confident, profitable and achieving great success, according to PwC’s Business Insights® 2007 Survey of Canadian Private Companies? Even then, with the US slowdown already underway, the vast majority remained optimistic and unaffected. Now, many of the country’s business leaders are scrambling for ways to make sure their companies are among the survivors should the current downturn continue. The good news is that there are strategies for managing in a downturn. In a worst case scenario—because realism is key—these strategies can ensure your company’s survival, positioning it so that when the economy picks up, it’s out of the gates right away. At best—because positive realism is also key—it can help you take advantage of the opportunities downturns offer and come out even stronger.
“During a downturn, don’t cross your fingers and count on tomorrow being a better day,” says John McKenna, a partner and senior vice president in the Corporate Restructuring and Advisory practice of PricewaterhouseCoopers. “You have to be proactive and make positive changes to deal with the new economic realities we are currently experiencing.” This means companies have to assess themselves with brutal honesty and detail. They need to keep a vigilant eye on the horizon, ready to identify possible coming threats and have contingency plans in place. It also means they have to have an eagle eye on internal details, constantly analyzing and reviewing what’s happening—and planning for new problems that might occur. These strategies help companies remain agile and resilient, navigating the storm with confidence, with the ability to change course quickly if necessary. “Being proactive with all parts of your business is vital. If you’re just reacting to everything, you can ‘get by’ when times are good, but in my view, you’ll ultimately end up losing when times get tougher,” says McKenna.
1. Know your core strategic advantages and focus on them
2. Know your key customers—and their risks to you
3. Prepare for the actions of your competitors
4. Develop a detailed budget model and update it frequently
5. Use a systematic approach to identify potential cost-cutting areas
6. Protect your liquidity
1. Seller beware!
2. Actively monitor your existing customers’ accounts receivable balances
3. Prepare weekly cash flow forecasts
Finally, if you do get into financial difficulty, don’t ignore it. Identify and deal with issues head on as soon as you can. Problems never get better by themselves.
If you’re struggling to identify the issues or how to solve them, seek professional help from advisors who specialize in restructuring and turnarounds. “You rarely get a second chance to restructure,” McKenna adds.
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