Dealing with recession

Feb. 11, 2008
“When someone says that the free market isn't working, what he means is that he doesn't like the way the free market is working.” --Nicolas Martin OK, OK. Faithful reader Bob Inderbitzen already took me to task for using the ‘R‘ word in reference to ...

“When someone says that the free market isn't working, what he means is that he doesn't like the way the free market is working.” --Nicolas Martin

OK, OK. Faithful reader Bob Inderbitzen already took me to task for using the ‘R‘ word in reference to the U.S. economy. Sure, the economy is still growing, albeit at a snail‘s pace, meaning that it‘s (of course) not receding. Still, the economic climate out there is far from promising, especially in the freight world, with volumes down and fuel prices still on the high side. So how trucking companies - especially the smaller ones - plans to keep its head above water is going to be critical should things go further south.

Rather than bore you with my own blather on this subject (I‘ve already been told NOT to be an economist - and that‘s good advice, actually, since adding and subtracting still aren‘t my strong points) I am going to let Professor Jerry Osteryoung from the college of business at Florida State University share a few points. Now, he thinks a recession is already taking place - whether you agree or not, however, isn‘t what he‘s aiming to discuss. He wants to point out that businesses of all stripes - even trucking - need to face the unpleasant realities foisted on them by economic declines.

Now, from my point of view as one of many worker bees out there, I absolutely loathe the word “layoff.” From what I see, there are always places to cut costs before you reach the folks doing all the work. But sometimes it‘s necessary. Look at the automotive giants GM and Ford, for example. Yes, they helped dig their own graves to an extent by building ugly products of poor quality. Yet there‘s also the glaring fact that factories simply don‘t need as many people any more due to wider use of robotics - and that it‘s simply safer to use robots, too.

Still, it‘s an ugly discussion when talk turns to shrinking the workforce. That‘s why I am going to let the good professor take a stab at it. Professor Osteryoung, the floor is yours:

“As most things in life are cyclical, our economy is in the process of going through a downward cycle. I am seeing evidence of this starting to happen in many types of businesses, not just in housing. Automotive sales are off as well, and even many thrift stores are seeing declining revenues from potential customers. This recession is starting to affect all income levels, and many entrepreneurs are starting to feel the effects of this right now. Furthermore, when the states start personnel cutbacks to account for the deficit in state budgets, local economies and entrepreneurs are going to undergo the effects even more dramatically.

The Federal Reserve reduced the rate it charges banks by ¾ of a percent, and then reduced it again. In addition, the federal government is in the process of passing a large tax rebate for all taxpayers. The bottom line is that we are going into a recession, which just happens with our type of economy.

With a recession coming or already underway, you must have a way to deal with declining sales. I like to tell entrepreneurs that they must have a plan to withstand a fall in sales of 30% to 40%. Hopefully this will not occur, but just in case, a plan must be in place for this coming year.

Time and again I have seen businesses make the mistake of waiting too long to cut back in the face of falling sales. They spend too much time hoping things will improve. This is a very costly error and can risk the financial viability of the business. The sooner you cut back, the better.

In terms of cutting costs, you need to evaluate labor, communications, insurance and all costs. Nothing should be sacrosanct as you look for ways to reduce costs. However, it is not a good idea to cut advertising, as this activity is critical for your continued existence.

Like most things, cutting costs is a very traumatic process. However, you must do it, and it must be done before it is too late to recover from the financial impact. I have assisted many firms that are going through this process, and each has a hard time, especially when it comes to laying off workers. However, without exception, they come out of the economic decline saying that cutting costs not only helped them get through the rough times, but it also allowed them to flourish in the future.”

Want to get in touch with Profesor Jerry Osteryoung? He can be reached by e-mail at [email protected] or by phone at 850-644-3372.

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