Lessons from the previous Recession?

[Kiwi1234]

I'm wondering if anyone would be willing to share any lessons from owning a business in the recession? Anything you'd advise for future recessions, backup funds etc?

 

[pentel]

Been in business since 1979, so have been through a few. We have found that the companies that disappear tend to be the fast growing, minimal margin, maximum borrowing, no reserves companies who rely on turnover to keep the continued support of their bank.

To keep the turnover up the margins become negative and then eventually the inevitable happens and they are no more. A recession can get rid of some companies which should have finished a while earlier but continue to cling on.

For me it has always been minimise the borrowing, protect the margin, have a reserve and grow within our means.

It is not an overly exciting path, but who needs the stress?

 

[Mitch3473]

I've started a business up in all the ' recessions' since the 80's, all required hard work but all were successful. Makes the goods times a lot better. If you can do it in a recession and succeed you should be laughing.
The other pearl of wisdom that I gained was that people still have money in a recession and more to the point, spend it. The hard part is finding them.

 

[Kiwi1234]

Been in business since 1979, so have been through a few. We have found that the companies that disappear tend to be the fast growing, minimal margin, maximum borrowing, no reserves companies who rely on turnover to keep the continued support of their bank.

To keep the turnover up the margins become negative and then eventually the inevitable happens and they are no more. A recession can get rid of some companies which should have finished a while earlier but continue to cling on.

For me it has always been minimise the borrowing, protect the margin, have a reserve and grow within our means.

It is not an overly exciting path, but who needs the stress?

A reserve is definitely sensible, Bill Gates said he had a 6 month backup to pay every employee while making nothing. Definitely sensible and sounds good!

 

[Kiwi1234]

I've started a business up in all the ' recessions' since the 80's, all required hard work but all were successful. Makes the goods times a lot better. If you can do it in a recession and succeed you should be laughing.
The other pearl of wisdom that I gained was that people still have money in a recession and more to the point, spend it. The hard part is finding them.

interesting point!

 

[The Byre]

1. Recessions are good for wine, women and song.

2. Recessions are bad for companies that are in debt.

3. Recessions are good buying opportunities, esp. if interest rates go sky-high and property gets cheap.

 

[Kiwi1234]

1. Recessions are good for wine, women and song.

2. Recessions are bad for companies that are in debt.

3. Recessions are good buying opportunities, esp. if interest rates go sky-high and property gets cheap.

inferior goods do very well for sure!

 

[MBE1]

Cash flow kills more companies in a recession than almost anything, so reduce credit by watching your stock orders, overheads etc , and chase your customers on outstanding monies as hard as you dare.

 

[Pish_Pash]

Except Governments of western developed world are totally obsessed with avoiding recessions on their watch ....& all now intervene with a finger in the dyke mentality - http://news.sky.com/story/if-the-jam-credit-bubble-pops-its-as-big-as-brexit-10823094 ...personally, I wish they'd stand well back & stop interfering - recessions are a necessary cleansing part of the ebb & flow of the economy & business life.

 

[pentel]

personally, I wish they'd stand well back & stop interfering - recessions are a necessary cleansing part of the ebb & flow of the economy & business life.

Couldn't agree more, rather like seasons for farmers.......

 

[The Byre]

- recessions are a necessary cleansing part of the ebb & flow of the economy & business life.

Indeed! In fact recessions are important, as they have a 'pruning' effect on the economy, by cutting out inefficient companies and unproductive workplaces.

 

[marklew]

Working in procurement companies have a massive push on reducing costs and being efficient during recession, which is somewhat lost in the 'good years'

I would recommend keeping a clear focus on input costs when out of a recession and you will see higher margin, or if competing on price, competitive advantage. Every £ savings is a pound extra profit, every pound in extra sales can be as low as 1-3p in profit, depending on the margins you are running at.

The additional margin can make your reserve for the next recession, and I agree with the above, a recession is the best time to buy... house companies competitors, you will gain maximum value, as long as you have built up the funds to be able to invest at this time.

 

[Kiwi1234]

all great points, thanks guys! I'll definitely consider it. Never liked the thought of being reliant heavily on creditors anyway, doesn't sound like a very nice place to be for your stress levels

 

[karenvjames]

I would also add, don't cut back on your marketing and advertising during a recession. In fact, you need to increase it, but be wise with where you are spending it. Customers tend to spend less in a recession so you need more of them and inevitably some will also go out of business. Focus on spending where you will get the best return for investment and drop unnecessary spending or where you aren't getting any results. The benefit of increasing your marketing is that when the recession ends you will still have all those new customers who should be able to afford to spend much more with you so profits should escalate quickly.

 

[Ashley_Price]

Here is a blog post I did in 2008 called There is No Such Thing As A Recession

Some of the business names may be a little out of date, but I think it holds true today as it did then.

 

[Kiwi1234]

I would also add, don't cut back on your marketing and advertising during a recession. In fact, you need to increase it, but be wise with where you are spending it. Customers tend to spend less in a recession so you need more of them and inevitably some will also go out of business. Focus on spending where you will get the best return for investment and drop unnecessary spending or where you aren't getting any results. The benefit of increasing your marketing is that when the recession ends you will still have all those new customers who should be able to afford to spend much more with you so profits should escalate quickly.

yeah

 

[Kiwi1234]

Here is a blog post I did in 2008 called There is No Such Thing As A Recession

Some of the business names may be a little out of date, but I think it holds true today as it did then.

thanks ashley

 

[The Byre]

I would also add, don't cut back on your marketing and advertising during a recession. In fact, you need to increase it, but be wise with where you are spending it. Customers tend to spend less in a recession so you need more of them and inevitably some will also go out of business. Focus on spending where you will get the best return for investment and drop unnecessary spending or where you aren't getting any results. The benefit of increasing your marketing is that when the recession ends you will still have all those new customers who should be able to afford to spend much more with you so profits should escalate quickly.

Sorry to rain on your parade, but absolutely not! No! No! No! And in that order!

Advertising is expensive! It costs real money!

Advertising adds a percentage of new trade to your existing turnover (assuming that the ads are good and well targeted, of course!) I want to add a percentage to a big pot, not to a small pot.

If a car brand sells 100,000 cars p.a. and an additional ad-spend of £10m to a new total of £20m takes those sales to 120,000 (20% increase) that is 20,000 cars I have sold for £10m. That is a cost of £500 for every additional car sold.

If during a recession, I can only sell 50,000 cars, spending that extra £10m on advertising will cost me £1,000 per car. That is considerably more than the average gross profit per car of any of the mass-produced VW brands, except Audi.

And I have based those figures on the real-life figures of the car industry. They are of course, totally ball-park figures, but are very roughly representative of the kind of figures a car manufacturer faces.

Remember - advertising does not give you absolute numbers, but a percentage increase over what you have right now. Spending large sums to add a few percentage points to very little, is stupid!

 

[Kiwi1234]

Sorry to rain on your parade, but absolutely not! No! No! No! And in that order!

Advertising is expensive! It costs real money!

Advertising adds a percentage of new trade to your existing turnover (assuming that the ads are good and well targeted, of course!) I want to add a percentage to a big pot, not to a small pot.

If a car brand sells 100,000 cars p.a. and an additional ad-spend of £10m to a new total of £20m takes those sales to 120,000 (20% increase) that is 20,000 cars I have sold for £10m. That is a cost of £500 for every additional car sold.

If during a recession, I can only sell 50,000 cars, spending that extra £10m on advertising will cost me £1,000 per car. That is considerably more than the average gross profit per car of any of the mass-produced VW brands, except Audi.

And I have based those figures on the real-life figures of the car industry. They are of course, totally ball-park figures, but are very roughly representative of the kind of figures a car manufacturer faces.

Remember - advertising does not give you absolute numbers, but a percentage increase over what you have right now. Spending large sums to add a few percentage points to very little, is stupid!

well it depends on the industry, for ecommerce it makes sense. Cut back on the ads that have a bad ROI, work on conversions, and put more money into adverts that are giving a great ROI. This stuff is trackable and makes sense, sure for brick and mortar businesses it may be different, but for the content I feel Karen is right

 

[karenvjames]

I understand what you are saying, but if you cut back on unnecessary and non-vital expenditure, including marketing that is not producing a yield, then there is normally enough money in the budget for extra marketing. If you constantly monitor what's working with your marketing and only focus on that type of marketing during a recession, then you will be getting in customers as a result and not wasting money. Also, many of us have spent hundreds and even thousands of pounds on unnecessary services for our businesses which has been a complete waste of time, I know I have.These funds can also be re- purposed for your advertising.

I haven't done any marketing for the car industry but have worked in the B2B and B2C sectors and in general those that don't market when times are hard either ceased trading or have to borrow loads of extra money just to get through as cash flow becomes a major issue.

Ideally we should all plan ahead when times are good for a rainy day.

 

[The Byre]

I understand what you are saying, but if you cut back on unnecessary and non-vital expenditure, including marketing that is not producing a yield, then there is normally enough money in the budget for extra marketing.

You have to do all that during the good times anyway. If you are wasting money, then you are wasting money - period!

And wasting money is a great way to run your company into the ground!

The times can be brilliant, but you MUST monitor and track your advertising and be able to quantify the returns on that advertising at all times.

Also, many of us have spent hundreds and even thousands of pounds on unnecessary services for our businesses which has been a complete waste of time, I know I have.These funds can also be re- purposed for your advertising.

No they cannot! Why not? Because only a fool spends money on unnecessary services. If a service is unnecessary, bin it. Check every insurance contract. Double check all telephone and internet service. Hedge your energy costs, either by buying ahead or buying in bulk. Check every utility bill. If staff want to be wasteful, let them do so on their own dime, not on the company's dime.

Every cost must be screwed down to the absolute minimum. Even today, we have debates at our place over ambient temperatures and I come down on anyone going over 17C.

those that don't market when times are hard either ceased trading or have to borrow loads of extra money just to get through as cash flow becomes a major issue.

Ideally we should all plan ahead when times are good for a rainy day.

That's a symptom, not the illness. The illness is wasting money.

If I have zero turnover (time are REALLY bad!) and I buy £10k of advertising to increase my turnover by 100%, how much turnover do I have?

Answer - ZERO! F-all! Nothing. Nichts! Rien! Nada! £10k down the kazi!

In fact, even with a fantastic 100% mark-up (double your money) I would have to be doing £20k TO and spend an additional £10k on advertising, just to break even and see the ad-spend covered by the increase in profits.

And that is using an example, with mark-up and returns on advertising at Utopian levels, just to illustrate how futile it is to spend more on advertising during a recession.

The Real World ain't like that.

 

[karenvjames]

With the greatest respect if you have zero turnover then you have left it too late and you don't have a business. I thought we were discussing what to do if you still have a business to keep it afloat during a recession.

If we are talking real life examples here I personally had to make lots of staff redundant many years ago( the worse day of my life) during a particularly dry spell when the government changed the legislation in the industry my customers were in so they had to stop buying from us for a time and the only way I could get out of my situation was through finding new customers . I upped my marketing, made sure it was getting results and I did have to borrow to do this but it got me back on my feet and I learned that lesson. Since then I keep marketing even when things are quieter that way I always have a flow of customers coming in and with referrals it keeps my business cash flow in the black.

 

[The Byre]

the government changed the legislation in the industry my customers were in so they had to stop buying from us for a time and the only way I could get out of my situation was through finding new customers . I upped my marketing, made sure it was getting results and I did have to borrow to do this but it got me back on my feet and I learned that lesson.

That is a totally different situation. That was not a recession. The trade was still there, it was just that someone had reshuffled the cards and thereby put you out of the game. You got back into the game though energy, advertising and refocusing the efforts of the company.

During a recession, trade drops right across the board. Some people are losing their houses and the others are frightened for their futures. There is less trade overall to go after.

You get through those times, by squashing all possible costs out of the business and staying out of debt as far as possible.

 

[Deleted member 59730]

And that is using an example, with mark-up and returns on advertising at Utopian levels, just to illustrate how futile it is to spend more on advertising during a recession.

All the major surviving brands in the US after the great depression had increased their advertising spend.

There are lots of reasons to advertise and getting increased turnover is only one of them.

1/ Preventing a drop in turnover
2/ Keeping you brand in front of the public until things pick up
3/ Convincing shopkeepers to run promotions for your product and to give your product shelf space.
4/ Worker morale
etc etc

 

[JEREMY HAWKE]

Don't give credit Don't spend any money unless it is on yourself .

 

[Talay]

My thought is, on a small business level, that many will have much to trim in way of costs when the reaper comes around again.

The last recession created a seismic shift in perception and whilst some have fat to reduce, many are still unable to recover margins given away last time due to inability to raise prices.