Many economists are pointing to a potential slowdown in the U.S. economy after nearly a decade of sustained growth. “We see some headwinds coming,” said economist Connor Lokar during his forecast presentation at the Glazing Executives Forum at GlassBuild America in September. So, how can glass companies prepare for a potential downturn?
To begin to answer this question, I hopped on the phone with Glass Magazine’s financial columnist, Marco Terry. Terry, who is managing director of Commercial Capital LLC, emphasizes that, whether or not the economy actually enters a recession in the near future, “it’s always a good time to prepare.” Some specific tips:
1. Work on collections
“Assume that if recession comes, the customers paying you marginally—those on the edge of being OK to bad—are going to slide towards bad. Now is the time to start addressing that. For an owner not already checking the credit of commercial clients, now is a good time to start."
2. Optimize costs
“Now is a good time to see if there are areas where your company is leaking money. Now is good time to plug those leaks. If there are any areas that can be improved, now is the time to do it. These are the things that companies are going to end up doing when recession hits. If you do them now, you’ll be ready.”
3. Build a cash reserve
“This one is important. How big should the reserve be? That is a question of personal preference. It can depend on how your cashflow moves through the business. At minimum, 3 months; 6 months is better. However, there is always a tradeoff between hoarding cash and growing business. If you have cash sitting in a bank account, it’s not out there paying new employees, buying new machinery.”
4. Consider an emergency line of credit
“This is something I am hesitant to recommend. But the right time to get a line of credit is when you don’t need it. … There is nothing wrong with having line of credit that you don’t touch. It may cost some money to get it and maintain it, but boy will it be useful if things go south. … The major caveat is that it is for emergencies only. Getting into debt right before recession hits is a recipe for disaster.”
5. Cut unprofitable services and products
“Sometimes owners don’t notice or care about services that are draining money. If a company is doing reasonably well, they don’t focus attention on them. But, they become a cash drain when real products producing profits start slowing down. … The same goes for cutting problem clients. This is an important one. We’re starting to approach a time for firing bad clients. Moving them into a pay up front model would be a good idea.”
6. Expand sales and look for new markets.
“The right time to implement those [growth] strategies is now. When recession hits, you will be one of many companies looking to new markets.”
Terry will cover these tips more in-depth in the March issue of Glass Magazine.