This article originally appeared in the San Fernando Valley Business Journal, October 9, 2006.
If you listen to sophisticated business commentary on the television or on radio, you have probably heard any of number of very smart people talk about our economy and how to understand various economic indicators. I did not go to Business School so I am naïve in many of these terms.
For me, I don’t need a business degree to see that there seems to be more houses in my neighborhood that just aren’t selling, and that it is harder to get people to come to charitable events. And, why is it that getting people to pay their legal bills just seems to be tougher and tougher?
The simple truth is that the economy is going in the wrong direction (don’t ask me to chart this or to make those bar graphs in different colors). With housing prices falling, equity shrinking, equity lines being depleted, jobs being cut, and interest rates rising, is it any wonder that we are hearing that little voice going off again in our heads (those of you who were in business in the early 90s will remember it) saying “the recession is coming, the recession is coming.”
Now, it would be easy to diagnose the problem and leave it at that. Of course, any lawyer like me who got his degree in English and American Literature could do that. I won’t be so conservative.
If it is going to happen, then what can we do to make it easier on ourselves? By the way, please don’t ask any Wharton graduate to confirm my advice, as it may have very little to do with what is taught in B School.
Like many issues that we face in our personal or business lives, the biggest hurdle is recognizing that we face a problem in the first place. And, being on the front end of the curve will allow you to figure out sooner, rather than later, whether your business simply needs a doctor or whether it needs a priest/rabbi/minister (or pick your preferred religious counsel).
So, what kinds of proactive steps should a business take to stay well ahead of the recession curve, whenever it comes? Here are a few questions you might want to consider: 1) would a merger make sense; 2) should the business seek to be acquired; 3) should non-performing locations be closed; 4) does the business need to hire or fire more; 5) is there a succession plan; and 6) how well are our clients positioned to withstand the economic shifts?
Our firm addresses these issues with clients on a regular basis. Notice that I wrote with clients, not for clients. Your clients want to know that you are with them through thick and thin. And, the key to maintaining successful client relationships is letting them know that it is not “their” problem, but “our” problem.
Ask yourself what makes sense for their business, and then adjust yours accordingly. For example, many of our clients want to fix or reduce costs as a way of being pro-active in their business planning. No big surprise there. Of course, they may decide that means reducing legal services. Rather than risk losing a client, we can offer them flat rate legal services, under certain conditions. Alternatively, for clients who are prone to stretching payments, we can offer incentives (discounts) for early payment. Such options allow our clients to meet their financial goals and our firm to retain valuable clients.
Yes, it may cut into profits. But the discounts will be significantly less than the time and money spent chasing clients for payment. Absent this flexibility, you will watch your accounts receivable age, while your hair falls out in clumps. (If you notice my photo, you’ll see that I’ve had to learn these lessons.)
For my last piece of advice, and utilizing a little analogy from the real estate field, successful businesses need to market, market, and market. Your tendency may be to cut non-essential services such as marketing and promotional activities. Doing so may have a short term impact on your bottom line. However, recession-like conditions call for strategic marketing and planning. Figure out how to best position your business to take advantage of market opportunities, including the economy’s inevitable upswing when it occurs.
Only you can determine the specifics for your particular business. I can tell you that our clients want creative proposals to deal with a changing economy. Although I like to say that we are only limited by our own creativity, I’m envisioning the heels of my creative shoes being worn down pretty low over the next couple of years. However, as trusted advisors for our clients, our job is to react, to help, to fix, and to solve their business problems.
I am not making a prediction as to when the recession will hit, how long it will last, and when it will end. If I knew that, I would spend my time at the track betting on the ponies. I do know, however, that our economy will cycle, and I would rather be ahead of the curve, than behind it. What business wouldn’t?
Jim Felton is the Managing Partner of Greenberg & Bass LLP. He got an A– in Economics 2A at Brandeis University.