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Preparing for a Downturn in a Good Economy

Published Wednesday Dec 12, 2018

Author Casey Conley

Preparing for a Downturn in a Good Economy

By and large, these are good times for NH’s economy. Businesses of all sizes are reporting solid growth, unemployment remains low, and consumers have money to spend. Experts say this is precisely the time to begin preparing for the next downturn.

Morris McInnes, who mentors businesses with Upper Valley SCORE in Lebanon, says he and other volunteer advisors regularly challenge businesses to make plans for a major financial disruption, no matter what form it takes. McInnes does it so often he wonders if it comes across as nagging.

“We are trying to get people to be proactive, not reactive,” says McInnes, who taught for nearly 40 years at MIT’s Sloan School of Management. “It is so easy when things are good to become complacent, and we mustn’t.

“Any time we are having any interactions [with small businesses], we try to ask them, ‘Have you thought about the possibility of sales not being strong? Have you done any real thinking or planning about how you would react if that were to occur?’” he continues.

McInnes is quick to add that he believes many businesses in the Upper Valley are prepared for uncertain times.

Positive but Cautious
It’s anybody’s guess when the next economic slowdown might occur, but for now the outlook remains fairly rosy. The slow but steady economic expansion that followed the crippling Great Recession is now in its ninth year. Wage growth nationally is still lagging despite the recent tax cuts, but consumer confidence remains high.

In NH, unemployment has fallen to 2.6 percent, meaning the Granite State is effectively at full employment. In fact, the tight labor market has become the biggest challenge many Granite State employers face.

The lingering effects of the recession, however, have many businesses staying cautious despite a positive balance sheet. Silas Gordon, co-owner of North Country Hard Cider in Rollinsford, received good advice years ago to “never be further out than you are in.”

He has no doubt another downturn will arrive, noting that “anything that goes up that extreme is going to go down in a similar form.” With that in mind, he and his two partners, Ron Dixon and his brother, Ivan Gordon, have focused on finding efficiencies within their operation.  

“We don’t like to overextend ourselves, and we are definitely trying to be more efficient,” he says. “Every time we spend money, it is for efficiency, so that in the future we can be better suited to deal with anything that does happen with the economy.”

Their four-year-old cidery has grown steadily. Last year, it produced 1,250 barrels of preservative-free cider. But the company has never dealt with a recession. Gordon acknowledges that their ciders are a “specialty product” but adds that “bad times usually lead to some drinking.”

Strategies
Michelline Dufort, director of the Center for Family Business and the CEO Forum, says the businesses she works with are taking myriad approaches to protect against any softening in the economy. Some are buying capital equipment or acquiring aligned businesses to expand their customer base, while others are pushing into new markets or trying to deepen their relationships with customers through longer-
term contracts.

McInnes suggests business owners take time to visualize all possibilities, positive and negative, and then contemplate what kind of cash reserves and lines of credit would be needed to ride out a rough patch. For the latter, he recommends engaging with banks in this planning.

Businesses also must prepare for how slowdowns could affect their employees, suppliers and customers as well as accounts payable and receivable. “Really do the what-if,” he says, “as shocking as it may be.”

Joseph Guyton, principal of The Guyton Group, a strategic advisory firm based in Portsmouth, echoes several of those points. He suggests paying down debt, renegotiating terms of credit lines, and buying new equipment. Diversifying business offerings to generate new revenue streams also makes sense, he says.

Investments in workforce and employees should not be overlooked. Guyton recommends “investing in key people who are likely their most important asset. This would include both cash incentives and retention incentives to assure continuity and performance.”

Ryan Barton, CEO of Mainstay Technologies, a 14-year-old firm based in Belmont that offers enterprise-level IT and information security to small and midsize businesses, says the current business climate is favorable and many companies have money to spend on strategic investments.

That said, they are taking time to prepare for whatever might happen next. Being prepared for the unexpected, he says, starts with recognizing that economic conditions are temporary and prone to change. “And they can change fast,” he says.

Mainstay makes plans with a recession in mind. “[We] focus on how we can protect our clients and team in the event of a sudden downturn, but also how we can have resiliency entering a downturn to realize new opportunities,” Barton says. “This factors into growth plans, staffing plans, strategic opportunities and cash management. For example, we have no debt and are increasing cash reserves. We intentionally work across multiple industries so our client base is diversified.”

Like many businesses, Mainstay Technologies is watching for early economic warning signs and preparing financial and staff resources for resiliency. Barton says the best thing the company can do is continue to develop its team and leaders to guide the firm and their customers through difficult times.

Regardless of the industry and current financial position, a little planning now can go a long way later.

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