Turning Lemons into Lemonade

The extreme changes in public company valuations shown in the column to the right indicate that there is more going on than just a problem with home mortgages.  As surprise has become routine, many market participants are frozen with fear.  The magnitude of this fear driven freeze is uncertain.

Given these uncertain times, here are some steps to take to make sure your company thrives in the midst of uncertainty.  Putting your head in the sand is not a good option.

Acquisitions, Mergers and Sales

• Buy low; sell high.  Now is a great time to be a buyer.
• Talk to competitors and companies in adjacent markets.  They may be troubled and “ripe” for acquisition.  You might acquire revenue, assets, and expertise as well as eliminate a competitor.

Planning

• Plan for the economic recovery
• What steps does the company need to take now to be ready to maximize sales in the recovery?

Customers

• Review credit limits for customers
• Watch for slow pay
•  Move quickly to work out payment arrangements
• If necessary, be the first to move to legal action to collect the receivables

Vendors

• Don’t surprise your vendors
• Negotiate early pay discounts; they may need the cash
• Move to longer payment terms if required
• Never make a promise that you do not intend to keep
• Negotiate lower prices on larger orders

Debt

• Obtain, enlarge, renew your credit line – the best defense is a good offense
• Talk to your banker regularly

Capital Expenditures

• Forecast the expected return on any new investment
• Based on the expected returns, prioritize capital expenditures
• Assign responsibilities for achieving the return

 

Sobering Statistics

As of October 10, 2008

• S&P 500 was down 37% for the year.
• Nasdaq was down 38% for the year.
• Bear Stearns was the first casualty.
• Lehman Brothers found out that a debt to equity ratio of 33 to 1 was a little too much.  RIP.
• Then, the Merrill Lynch bull was castrated.  It's now part of a bank.
• Even the vaunted hedge funds have been chopped down.  Many will liquidate this year.
• The market value of AIG, a 90 year old world class insurance company,  shrunk by $150 billion.