Our Economy is Exiting the Shaded Area — Are You? | submitted by Walter Simson
A neat tool is available on the Web site of the Federal Reserve Bank of St. Louis that allows you to track your own recession data. I looked at bank loans to businesses, which continue to decline. The Fed chart shows that the economy has exited the shaded area — shaded, as in “period of recession indicated by shaded area.” Sure enough, there is a little band of white in the chart. If you have very good eyes, you can see it on the right.
So why does it feel like we are still in a recession? If you run a business, the reason is right in the chart — business loans are down from just over $1.6 trillion in 2008 to just under $1.4 trillion now. The Fed says this is largely due to the fact that companies are not drawing on their available credit, and I buy that. Largely.
But some of the decline is due to banks not renewing or otherwise extending credit to other borrowers. If you are a borrower, and your credit reduction is exactly proportional to the overall decline in loans — say, from $1.6 million to $1.4 million — you might call to collect your receivables a little more aggressively. Maybe pay your bills a little late. Not nice, but you’ll get by.
What if you are unlucky, as in as in, “you-are-a-debtor-to-CIT-who-just-went-into-bankruptcy-themselves” unlucky? That means you have to find new credit somewhere else. That is hard to do, but there are two things that are critical if you are going to have a chance.
First, you must determine where your company is making money and losing money — and you must stop losing money. The analysis is not hard. If you are a retailer, you need a store-by-store analysis. A manufacturer or distributor? You need product-by-product and customer-by-customer rankings of profitability.
What is hard is making the tough decisions to curtail yesterday’s ambitions so that today’s business makes money.
Second — and this is critical — you must make a clear and convincing story of your company’s worth as a borrower. The narrative and the backup need to be very persuasive.
What this means in practical terms is that you can no longer rely on a guy you know down at a bank, or your son-in-law’s best friend. Choose a worthy institution and prepare relentlessly to win their approval. It can be done.
By knowing the facts and making the right moves, you can take action to improve performance. Because, like it or not, even though the credit crunch is not your fault, it is your responsibility to survive
If you do not take these steps, you will see your business’s shaded area extend uncomfortably into the New Year.
Walter Simson is founder of Ventor Consulting, performance-improvement and turnaround specialists for middle market companies. Stay tuned for regular updates from Walter in the coming months.
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