PRESIDENT'S CORNER: October 2023

The President's Corner is featured in FEI Louisville's monthly newsletter.

The Economy. Will it slip into Recession?

There has been much discussion and debate over the last year if the economy will go into a recession.  Economists had been split between, “Yes, absolutely” and “No or Maybe, but it will be small if there is one because the job market is so strong.” 

Inflation is being felt by everyone and likely will reduce consumer purchases.  Interest rates are high and may go higher which will likely curtail decisions to invest in new equipment or other expansion projects. Currently, most economists seem to agree that we are probably headed for a recession but there is still debate as to the severity and length.

I think it is time to do what financial professionals do best: Plan and prepare.  It is a good time to employ the phrase that we have heard 1,000+ times: Plan for the worst and hope for the best. Very sound advice that has been proven time and again.

Do you have your plan ready if the economic downturn happens?

Staffing

• Have you already targeted areas if layoffs become necessary?
• Have you considered alternate staffing models? If 2 people leave, possibly replace with 1 person.
• Have hourly workers work 7 hours instead of 8. If 7 hourly workers go to 7 hours/day, then you can save a person’s position instead of layoff.
• If a full-time person leaves can the position be filled with a part-time person? In bad economies, more candidates are available and many will accept part-time.  If a full-time position becomes two (2) part-time positions, then you can employ/help two people in times of greatest need.

Inventory

• Do you need to start reducing inventory? You don’t want to have excess inventory when a slowdown occurs. Reducing inventory will increase inventory turns (if sales remain constant). This is usually preferred by banks.
• Reduce or eliminate dead stock, over stock, and obsolete stock. There is no better time to deal with dead and obsolete stock than when the economy is still strong, and profits are good. Secondly, write-off or write-down known items.

Control spending



• Bad economies are time to rule with an iron fist.
• Reduce travel.
• Reduce conferences and training that might be postponed for a year.
• Make sure staff and projects are staying withing budget.
• Create a revised budget with reduced costs.

Reduce debt

• With rising interest rates, it might be a good time to review the entire loan portfolio.
• Does it make sense to negotiate with your bank, or possibly switch banks, to get better rates?
• Does it make sense to consolidate loans and refinance into one loan?
• Consolidated loans might qualify for a slightly lower rate and probably a lower total monthly payment.  This could increase cash flow at a time when “Cash is King.”

Customers

• Make sure you maintain GREAT relationships with your customers. Don’t give them a reason to look at your competitors.
• Does it make sense to take a reduced profit percentage for a while to keep your customers indebted to you?
• Does it make sense to offer a rebate program? A rebate program can be more than just giving money back to the customer.  It can be used to offer rebates on new products or new services.

These are only a few ideas to help navigate an economic downturn.

Do you have a plan?

Plan the work.  Work the plan.

Jim Schildt is president of FEI Louisville and Director of Accounting at Onsite Management Services.  Email Jim at jims@omgservices.com.