Things always seem good when things are good. We are currently in a strange spot, economically speaking, as a society and the good times are unfortunately coming to an end. The US Economy has been doing great since the last dip in 2008. The stock market is way up and unemployment is at an unprecedented low. In fact, we will probably never experience unemployment like this again in our lifetime. Typically, the economy works in cycles, four of them to be exact; Expansion, Peak, Contraction and Trough. Expansion happens when the economy grows by at least 2% and the stock market is doing great. When we peak, the economy grows by more than 3% and inflation sets in. Contraction is when growth slows but we are not in negative territory. Trough is the signal for a recession and that’s when the economy has more than 2 quarters of negative growth. I believe that today we are in the contraction phase, which has gone on for some time and teetering on a recession. While the contraction hasn’t been significant it has been signaled by multiple factors. These cycles usually last ten years or so and we are now beyond that, so a recession is imminent.
Are you ready? I am quite sure that most CRA’s would say they are ready for this because they experienced this back in 2008. The reality is that no one is completely prepared, but there are things you can do to better prepare yourselves. While these things are merely my opinion, I think they are things that all screeners can and should do to prepare (for what? Recession?). Doing all these things would not be possible, so I’m categorizing them by risk. While suggesting all of them may look like I’m talking out of both sides of my mouth, you will be able to pick those that suit your financial strengths, business objectives and goals, and risk tolerance for the future.
- The best economic indicator is your clients.
Risk – None.
Wall street typically uses ADP payroll data to show peaks and valleys in hiring. We have a nice lead on that because we are screening these people weeks and sometimes months before they are even on payroll. Is there anything in your data that you can use to help better predict the future? Are you using this data to do some financial planning for your company?
- In the background screening industry size really matters.
Risk – None.
Everyone benchmarks themselves by how high their revenue is, how many employees they have, and who their biggest clients are. This brings me back to a famous quote (the author is unknown) “Revenue is vanity, profit is sanity, but cash is king.” Only your stable and reliable cash flow can really demonstrate your success. Receivables are a great asset, but just like you can’t predict the future, neither can your clients and because of that, shit happens! You are going to have receivables you can’t collect on, vendors who want to raise your prices, and clients who want their prices lowered. This is what happens in a recession. Be sure you are spending your cash wisely and saving it aggressively. The only way you will weather that storm is having your cash on hand. The art here is balancing your cash on hand with your debt and obligations. It is important to keep a keen eye on all of this.
- Invest in your business.
Risk – Medium.
Screening companies will struggle. If you have cash and debt available to you it creates a great opportunity to do an acquisition. Sterling did a great job of this in 2008 and it created a tremendous opportunity for them. It is also a great time to invest in the right people and cut the wrong ones. Hire the best sales people you can find so when the recession is ending and we are back in the expansion phase, you and your company are ready!
- Invest in your business part 2.
Risk – Medium.
Build new product lines and find ways to get optimum value out of the products you currently have. I’ve talked about innovation many times before, so I won’t bore you again with it here but it’s simple math. If your client is averaging $60.00 per screen with you now and you introduce new products to them, so maybe they’re spending $72.00. That’s a 20% increase in sales by simply adding something they need or are buying from someone else. Its math, its easy and you are leaving money under rocks for your competition to find!
- Build your brand.
Risk – High.
This can be expensive and if you don’t do it right you will simply bleed cash. EmployeeScreenIQ didn’t have a great brand because it just happened on its own. It took years of planning, content, awareness, money, etc. An economic downturn is a great time to focus on who you are and what you do and how you tell the world that story.
- Recalibrate.
Risk – Low, you should be doing this anyway!
This is the best time to give your company a full physical, stress test and all. It’s time to trim the fat, find clients that are not profitable, employees that are not performing and processes that need improvement. Doing a 1, 3 and 5-year strategic plan is not only necessary, but it is critical. Everyone’s strategic plan is the same: grow! But how are you going to grow, do you have the right people, can you scale the operation with that plan, etc. There is an art and a science to all of this. That is why good companies flourish and bad companies fail.
I could sit here all day and list things that you can do to improve your business, but then I wouldn’t have a consulting and recruiting business. These are the most important things to focus on right now but there are plenty more and of course we can help you. Contact Morris Group Consulting today for a free consultation. We have consultants like Nick Fishman on hand as well who can help with marketing and sales and others with very specific skill sets that can help in all areas of your business.
Best,
Jason
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