The unprecedented boom in the global economy has led many people to speculate about ‘the next global down-turn’.
The decline in real estate and the March hiccup in the Chinese markets sent some pundits into a downward spiral. Following this we witnessed the meltdown of sub-prime mortgages in the US which has led to renewed speculation the US economy may be slowing past an acceptable point.
Companies operating in this climate are hesitant to prepare for a global downturn when business remains robust. However, it is this level of forward thought that has allowed businesses not only to weather a recession but to also leverage the environment for growth.
The US recession in 2000-2001 demonstrated that forward planning enabled many businesses to profit and extricate market dominance from their competitors. What were the common traits of companies who benefited from the last US recession?
Low leverage on balance sheets: the average net debt to equity ratio before the recession of those who came out as leaders was half of those who lost their leadership positions. The leaders also had more cash on their balance sheets before the recession.
Control of operating costs: Flexibility created from controlled operating costs before the recession provided top companies with the means to transfer funds, assets and personnel in a tightened market.
Diversified product offerings and business geography: Diversifying revenue streams, managing the customer base and product lines were a significant reason why companies thrived in the downturn, more so over twice as many companies had multiple sales channels.
These three common threads form a powerful case for companies to forward plan and be financially responsible. In addition, dividend-paying organisations either divested themselves or maintained dividends even as profits grew. Once companies moved ahead in their markets, they went further by expanding their businesses, organically (internal investments) or inorganically (mergers, acquisitions, alliances, joint ventures). Several companies grew their businesses and maximised profits regardless of the downturn.
Well-run organisations with fiscal and resource discipline are better equipped to withstand external pressure from an underperforming economy. Implementing debt-reduction, cost-control and diversification strategies well before a downturn in the economy is important to ensure the impact on the business is minimal and the success of the business continues.
If you would like to know more please feel free to contact us.
Regards.
The decline in real estate and the March hiccup in the Chinese markets sent some pundits into a downward spiral. Following this we witnessed the meltdown of sub-prime mortgages in the US which has led to renewed speculation the US economy may be slowing past an acceptable point.
Companies operating in this climate are hesitant to prepare for a global downturn when business remains robust. However, it is this level of forward thought that has allowed businesses not only to weather a recession but to also leverage the environment for growth.
The US recession in 2000-2001 demonstrated that forward planning enabled many businesses to profit and extricate market dominance from their competitors. What were the common traits of companies who benefited from the last US recession?
Low leverage on balance sheets: the average net debt to equity ratio before the recession of those who came out as leaders was half of those who lost their leadership positions. The leaders also had more cash on their balance sheets before the recession.
Control of operating costs: Flexibility created from controlled operating costs before the recession provided top companies with the means to transfer funds, assets and personnel in a tightened market.
Diversified product offerings and business geography: Diversifying revenue streams, managing the customer base and product lines were a significant reason why companies thrived in the downturn, more so over twice as many companies had multiple sales channels.
These three common threads form a powerful case for companies to forward plan and be financially responsible. In addition, dividend-paying organisations either divested themselves or maintained dividends even as profits grew. Once companies moved ahead in their markets, they went further by expanding their businesses, organically (internal investments) or inorganically (mergers, acquisitions, alliances, joint ventures). Several companies grew their businesses and maximised profits regardless of the downturn.
Well-run organisations with fiscal and resource discipline are better equipped to withstand external pressure from an underperforming economy. Implementing debt-reduction, cost-control and diversification strategies well before a downturn in the economy is important to ensure the impact on the business is minimal and the success of the business continues.
If you would like to know more please feel free to contact us.
Regards.
Michael Fingland
Managing Director
M +61 407 226 968
T +61 7 3229 5750
F +61 7 3229 5765 Level 5, 247 Adelaide Street
Brisbane QLD 4000
Managing Director
M +61 407 226 968
T +61 7 3229 5750
F +61 7 3229 5765 Level 5, 247 Adelaide Street
Brisbane QLD 4000
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