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Q We have not experienced a sales slowdown yet in 2008, but as a possible precaution, what are some steps companies can take to plan for the possibility in 2009?
THOMAS SCHEWE
OTTO BOCK HEALTHCARE
A When planning for a possible economic slowdown there are several precautions I would suggest.
First, take steps to manage your banking relationship. Make sure you are not at risk of defaulting on any covenants you have on current loans. In today's environment, that is a quick way to have your credit pulled, regardless of how well your company is performing. Also, see if your bank will increase your credit line to give you access to additional cash should you need it in the future. Your bank will be far more receptive to this now than if you wait to ask when you are in a cash crunch.
Second, take steps to shore up your cash-flow management. Be particularly proactive in setting up processes for customer collections and for efficient inventory management. These are two places where it is easy to tie up significant amounts of cash. Also, make sure that you are paying bills when they are due rather than paying early, as this is another way to free up cash that doesn't involve approaching your bank.
Finally, put together some contingency plans. Project your numbers for next year and conduct a worst-case analysis to see the impact that a decline in revenues would have on cash. Then identify some potential cuts in expenses or investments that could be made to keep you cash-positive if sales fall.
JAY EBBEN
ASSISTANT PROFESSOR
OF ENTREPRENEURSHIP
UNIVERSITY OF ST. THOMAS
OPUS COLLEGE OF BUSINESS
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