THE ECONOMY: PREPARE FOR THE OTHER SHOE TO DROP

4Although I don't pretend to be a financial expert, I have disciplined myself to learn basic accounting principles. The more financial news and literature I read, the more I want to pound my head. Here's why:

The global economy remains shaky. The industrialized world, the U.S. included, has fallen deeply into debt. To maintain our affluent standard of living, we have mortgaged our countries, states, cities, and households. Debt is crushing us. Despite their best efforts, many nations will have to devalue their currencies eventually. Japan is one such example. In countries with aging populations (such as Japan, the United States, and Western Europe), demographic trends are upside-down. For the foreseeable future, fewer and fewer workers will be supporting more and more retirees, an unsustainable situation. Something will have to give.

Keynesian economists argue that we can keep going into debt because sooner or later we'll have boom times and be able to pay off our obligations. For example, at the crest of the dot.com boom, governments were actually running surpluses and we thought we were rich. Those days are gone, at least for a while, until the demographics change once again.

I speak in front of many private company CEOs. Most of them are feeling shaky, even the ones with a positive cash flow. They don't like the tea leaves either. Collectively they're highly reluctant to put any of their cash into making investments, including hiring new employees.

Here's why I'm sharing this gloomy prognostication: You need to prepare your company and clients in case the economy tanks by 10%, 15%, 20% or even more. I believe that such a downturn is only a matter of when, because I see no reason for things to be anything but "flat" at best.

To help prepare you and your clients for this economic crisis, I'd recommend that you follow these guidelines:

  • Change all the time. How do we continue to differentiate ourselves is the question we constantly ask ourselves at HR That Works. Being ordinary, being like your competition, being the same company you were five years ago, won't cut it moving forward. When the shoe drops, your image needs to be progressive and forward thinking -- and yet offer stability.
  • Generate a Plan B under which you can survive a 20% drop in revenue. It would be smart to scale this plan assuming a drop of 10% to 40%. If you don't have the expertise to generate such cash flow projections on your own, you can easily find someone to do it for you on https://www.elance.com/r/contractors/q-excel%20spreadsheets/cat-finance-management. I did this for my company and it cost roughly $500. That's money well spent. Knowing that you have a plan to address the worst that could happen offers great comfort.
  • Tighten up performance benchmarks to improve your performance in general. This is no time to stand for subpar performance because somebody has either been there for a long time, is related to someone, is very likeable, etc. Results are what matter.
  • Have your entire team watch The Accounting Game webinar on HR That Works. This is the best accounting webinar I've ever seen. Also, have the team watch Brad Hams' Ownership Thinking. Bear in mind that Accounting is the course most often dropped or failed in college.
  • Conduct "what if ..." workshops with your management team and employees. Remember, none of us are as smart as all of us!

The primary goal of risk management is preparation. Don't let yourself get too comfortable -- and thus vulnerable. Have a plan to keep well prepared in case the economy tanks again.

Need insurance for You, Your Family or Your Business?
We can match you to a qualified, local insurance expert!
Further Reading
From maternity leave, parenting and maternity classes, and readying the new baby’s room, expectant parents have a lot on their plate as they prepare for a new baby. The tasks you need to accomplish can be overwhelming, but you certainly don’t want to...
Your teen is ready to drive, and you have the privilege of preparing them for this responsibility. Use nine tips as you prep your teen to navigate the road safely. 1.Ensure Your Teen Meets State Licensing Guidelines Teen drivers may officially ...
Your teen is ready to drive, and you have the privilege of preparing them for this responsibility. Use nine tips as you prep your teen to navigate the road safely. 1.Ensure Your Teen Meets State Licensing Guidelines Teen drivers may officially ...
I recently read George Gilder's Knowledge and Power, a powerful and profound book. Gilder's bottom line:” Knowledge is power today. Knowledge is wealth today.” The book uses the word “entropy” a lot. Gilder defines entropy as "a measure of surprise...
While you can't keep up with every development in technology, you can follow the overall trends to understand how it impacts your business. At the Workers Compensation Research Institute (WCRI), doctors reviewed how it's brought about a new economy, ...