We have seen that those who have weathered this storm most effectively and with a minimum amount of trauma shared several characteristics:
– They and their advisors were aware of potential exposures and were proactive in addressing them;
– They are able to make their personal, family overhead commitments from existing resources for an extended period of time, even without additional cash flow;
– They were willing and able to adjust their lifestyles and expenditures to current economic conditions;
– They lived very well, but well within their means, as opposed to at the limits of their means;
– They had assets that allowed them to meet existing business financing burdens and other fixed costs in a form that they were able to liquidate at minimal delay and expense;
– They had top counsel in place on tax, business and estate issues, and that counsel used a variety of strategies that not only served the primary goals but also protected those assets for the family. Some examples are the use of Insurance and Annuity Products and ILITS and Split Dollar agreements that preserve certain assets for the family by statute;
– They had great credit and relationships with banks that allowed them to agree on terms that were best for all parties involved, and had these relationships with several institutions;
– They had long term assets that were able to be made liquid with minimal penalty and delay, despite that liquidation not being part of the original plan, i.e. long term investments with an escape or liquidity plan built in;
No business is completely recession proof. Diversify and properly insulate your income streams if possible and be ready to be flexible and spot ways to identify new opportunities for your business and your skill set.
Realize that your niche, as you have defined it, may come to an end and know when to direct your assets and energy to those new opportunities. As examples, some of our clients who were major players in single family housing are now in the “economy” apartment market segment and are doing well. Doctors are expanding their practices and adding high value cash services like medically supervised weight loss to practices that were focused solely in other areas. Others have created booming new businesses like debt and credit repair that directly reflect the current economy.
Don’t take your market position for granted. In a down economy discount solution, product and service providers emerge in every market. These competitors will be selling price first and many consumers won’t see the differences until they have been poorly served and you have lost the business. Some steps to fight this:
– Make sure that your network and professional relationships are as strong and developed now as they were before you reached your current level of success;
– Look for ways to distinguish yourself and your business and maintain the highest standards of professionalism and service;
– Look for every way to add value and collaborate with other top services providers you work with so that you are a natural and logical part of every project or client they are involved with. – – Become part of a best of class team of teams that delivers the highest value to the consumer. This is true of everything from medical services to commercial contracting;
– Continue to be the best, or at least great at what you do. “Good enough” should not be part of your vocabulary.
Guard your credit like gold. Good credit has always been important on both personal and business fronts, but it is now more important that ever. As credit markets have tightened even the wealthy are having trouble obtaining credit for every day issues like home and auto purchase or leasing. Banks are scared and have pulled in the reigns on lending to all but those who have sterling credit, “good” is no longer good enough. They are also using late payments of any kind to move to the default interest rates permissible under various types on loan and consumer credit agreements as a way to generate fees and increase revenue internally. On a personal level this could mean that your VISA ay 8.9% jumps to 29.99% APR if your spouse sends in the check late. On a business level it is much worse. If your course of business has been to pay certain credit lines down late to a friendly creditor, it could now put you into default or cause an acceleration.
We are also hearing that clients who have used revolving credit lines for years as part of their business model either for capitalization or to pay recurring expenses are suddenly finding that their credit lines have been terminated or drastically reduced as is permissible in the fine print of most such agreements. This is despite the fact that the client has had no change in income or credit. Banks are simply deciding that they have too much exposure and are proactively limiting your ability to draw that money out.
Solution? – If you have a credit line that you know you are going to need or cannot risk losing – draw the money out now and look at the interest cost like an insurance premium; you may not want to pay it but if you need the “insurance” of having that money available it will not be available at any cost, certainly not in any short term scenario.
There are services out there that we have referred friends and clients to with great results. For an investment of a few hundred dollars many negative or inaccurate items can be removed in a short period of time increasing your credit score by dozens of points. Check your business and personal credit reports and see if they are accurate.
We are also seeing that banks that are in financial trouble and which need to reduce their outstanding debt balances are playing dirty tricks like re-appraising property they financed over 18 months ago to “current market value” at ridiculously low valuations then going back to the borrower and saying they need more collateral or they will call they note as the “fine print” entitled them to do. How bad can this be? In one case the bank re-appraised my client’s multi-million dollar commercial property at about 50% of current fair market value and wanted an additional seven figures in collateral. Fortunately, this client had sterling credit and good professional relationships that allowed him to re-finance at a lower rate with a more solvent and ethical bank.