Ask anyone who went through our industry crisis in 2008/09 what they would have done differently and they will probably tell you that they wish they had made some of the tough decisions much sooner. For the past two and a half years, our industry has been fortunate to have been extremely busy (and profitable) while the rest of the world has either stood still or locked down. Unfortunately, all good things must come to an end. No one is sure what 2023 will be like, but most of us agree it won’t be the hit-and-go environment that we had in 2020-2022.
There is an old axiom that a rising tide lifts all ships. This means whether a ship is doing well and sailing high in the water, or doing poorly and is so low in the water that it might sink, the rising tide will carry both over the treacherous rocks. Well, we’re seeing a falling tide, and that means all those rocks are going to be a lot closer to the surface and sinking some of the poorly managed ships.
Hopefully you’ve used the last two years to improve your business, but if you’ve just ridden the tide, it’s not too late to prepare for tough times. The obvious place to start is your balance sheet. View your finances and begin paying off your debt, freeing up the cash as your inventories and accounts receivable decrease and prices fall. Look at your long-term financing. Make sure you have access to enough capital to see things through should things get tough. Also, look at your credit practices and procedures. Start a process of calling the immediately overdue customers to find out why they missed their payment. It gives you an early indicator of when a client is running into liquidity problems and it makes you the squeaky wheel that gets the oil first.
A little less obvious – but much more strategic – is to look at the different parts of your business objectively now, before it might get emotional. arrange everything. Start with your employees. Don’t look at pay or tenure, look at who you could make up for when they go versus who you couldn’t replace. Think about who can take on multiple responsibilities or tasks in your business. Do all of this before you find yourself under an emotional weapon, trying to keep someone from leaving the company, or having to make difficult decisions about downsizing. Don’t rank your customers by revenue or gross profit, rank them by who is most loyal and always prioritize on-time payments. Which tie up the least resources? Who’s willing to work with you if you can’t get them what they need, when they need it? Also, think about which customers have the most solid business models and serve the parts of the market that may remain strong.
Finally arrange your equipment. When things slow down, don’t just park your excess gear in the back yard. Old Bessy costs money to license, insure, and run, and those bills will kill you.
If you take the time to think about these things and formulate a plan now, you will be prepared for whatever our new normal may be. When things slow down, you will react quickly. When things stay level, your ship simply sails much higher in the water, giving you peace of mind that your business is in order.
Russ Kathrein is with the LBM Division of Do it Best Corp. based in Fort Wayne, Indiana.
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