Dust Settling In A Hurricane?

Rethinking credit, liquidity and value for your business

With the debris and destruction of 2008 not even over, we business owners know we must look ahead and keep going, even before we can clean up around us.

But how? So many of our basic assumptions on liquidity, credit and valuation are being refuted. Recently my Rainmaker Roundtable group of experts met and discussed:

If you need to spend money now, expect disruptions in getting it.

Business owners with health care bills, parents with college bills and recent retirees who must spend money now have to spend by their long term investments, regardless of liquidation costs. Cash is king like never before. In the coming months the bail out plans will not make money more plentiful as banks and their customers will use cash to cover their other unfunded needs. The resulting conservatism will drive many to hoard their cash and spend it only where they have to or think it increases their security rather than where it will make them more money.

As banks break more lending promises, suppliers and customers will follow suit.

As the credit crunch spreads, fueled by banks who aren’t lending their bailout funds and commercial real estate deals keep unraveling just like subprime mortgages did, many buyers and sellers will not be able to keep commitments they made. In a world where borrowers are breaking promises to show up at closings and buyers are unable to cover cash calls or debt service, everything is becoming much more negotiable.

Value is what someone will pay for anything today and what you think its worth tomorrow.

As the stock market has dropped 45%, the value of core assets like real estate has dropped even more. Investors are finding it very difficult to differentiate between businesses that are undervalued because of their intrinsic loss of value and those who have dropped as a result of no market confidence. For example:

  • If a public company is down to being worth two-to-three times earnings, why should a private company be worth five times that without audited financial statements?

  • For insurers, their measurement of replacement cost is becoming far more important than anyone’s perception of fair market value.

  • Thoughtful investors are coming to grips that an 8,000 Dow Jones market will reflect the true value of stocks and will so for years to come.

 We should have seen this coming.

Many financial experts today lament missing the obvious signs. From accepting non-securitized investments and NINJNA buyers (no income, no job, no assets) as “same as cash,” the signs were there and judgment lapsed. The best and the brightest were duped across the political board.

Action Steps For 2009
With this depressing assessment, here are 6 key steps that small business can take to survive and thrive. These are:

  1. Focus on serving your existing customers who trust you and are paying you today. Make them successful now and confident for the long term and you will be paid in the short term.

  2. Be careful taking on new business if you’re asked to hold off on getting paid or you cannot establish trust. Reject business where you cannot jointly define and agree on expectations and measurements of success.

  3. Accept that having a down 2009 is not personal failure but not maintaining profitability and liquidity will be.

  4. When you find clear value that paying customers believe in and are buying now, change your packaging or positioning to make your best and highest use® (BHU) easier to buy. Price and market this aggressively.

  5. If you advise customers, expect to put in longer hours and work outside your BHU as you may have to provide new service and limited expertise to enhancing your role as a trusted advisor of someone who wants help in multiple arenas and isn’t comfortable giving limited funds to someone else, says Rebecca Morgan of Fulcrum Consulting Works. In this environment, functional or specific business problems won’t remain in silos but are interrelated and invading the thinking of everyone in business.

  6. Put aside your acquisition and expansion plans for now and focus on serving your existing customers who trust you, and have real problems and real money your real value can fix right now.

What will your business be in 2009? With your skill and expertise, it will stay liquid, have credit, demonstrate value and make a profit! And dust eventually settles, even after a hurricane.

Want help with directing your business in difficult economic times? Contact Andy Birol directly for more assistance.

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