Cover Story: Be prepared

Be prepared

Early planning, constant monitoring help lessen effects from potential recession

by Andrew Tellijohn

Photographs by Tom Dunn

In mid-2008, Owatonna-based General Equipment Co. was going gangbusters. The construction equipment maker had a 12-week lead time on projects and life looked good. President Dennis Von Ruden remembers going into a staff meeting around that time and sharing his plans to downsize the company. “They looked at me like I was crazy,” he says. But Von Ruden was monitoring economic indicators that indicated a tremendous economic crash was coming. He knew his industry’s ties to housing, roads and home improvement projects meant it would be among the first to feel the effects. And he realized the company had too much staff and that efficiencies were going down. He needed to start planning.

“Customers were still wanting stuff so you have to figure out how you’re going to balance things,” he says.

Conservative by nature, Von Ruden says he’s always keeping an eye on things, making sure the company doesn’t grow unsustainably fast and prioritizing purchases.

“We watch out debt load very closely,” he says. “You sometimes have to limit growth to a certain degree. Too much growth too fast is not good. It comes back to haunt you.”

Ultimately, Von Ruden was proven correct. By early 2009, the market was tightening and by year’s end, times were tough. General Equipment Co. was hit hard, with an employee count of about 60 people being cut nearly in half and sales dropping by about 45 percent.

But planning ahead helped. He used savings to purchase some higher-tech equipment to replace older machinery – and some people who had left -- and used the downturn as an incentive to diversify into new markets and add new features on existing products.

“We went into it having some capital to work with, that’s what got us through,” he says. “The interesting thing is we actually added to the bottom line. We actually grew as a company financially through that mess just with some watching of pennies.”

Rainy day funds/ Setting aside money in “buckets”

While the economy is still humming along as of mid- 2019, economists have been hinting that sometime in the next couple years, growth could slow and a recession could hit. And besides, experts say, the time to start planning ahead is now, not when the economy does take a turn for the worse.

David Benusa, CEO of accounting firm Froehling Anderson, says he talks with companies during good times about setting aside money to protect against a recession or prepare for some other opportunity.

“Having a nest egg can really provide opportunities,” he says. “Not just for recessions, but for a lot of different things.”

He suggests utilizing the “bucket strategy” utilized by a financial adviser some years back. In one bucket you keep enough cash or liquid assets on hand to survive the next six to nine months. In another bucket, invest a bit more aggressively in bonds, mutual funds or other instruments where the bottom will not fall out in the event of a recession.

In a third, you keep an amount that isn’t going to be touched for several years in case opportunities for acquisitions, expansions or other transitions take place.

“We definitely have conversations with clients about what do you do in the good times to survive downturns,” Benusa says. “If businesses are well-heeled coming out of the run we’ve had, as frustrating as they can be, economic downturns can be opportunities.”

But definitely don’t wait until a recession hits to start planning. “It’s too late at that point,” he adds.

Study your customers, look for opportunities

Kim Brown, president, and Richard Brown, chairman and CEO of JNBA Financial Advisors, say procrastination when preparing for a downturn can be disastrous. They deal with recessions from both sides, advising clients on how to best prepare while also making sure their own small business is taking the steps necessary to survive and thrive. Richard Brown says it’s important for companies to know whether their customers and strategic partners can be counted on to survive a downturn.

“The theme is, if you, over a period of time, are running a business and are looking at things the right way, you’ll be ready for a recession,” he says. “It won’t be as much of a swing for you. … It should be part of your ongoing best practices.”

Kim Brown adds that companies should at least try to find some opportunities to invest in the business in hopes that when the downturn ends, they’ll be ready to start rolling again.

“I remember the conversation Richard and I had,” she says about the days leading into the 2008 recession. “‘This would be the time. … ‘Let’s go strong in technology. Things are going to turn around. Let’s take this time to rebuild in terms of how we’re using technology so when the turnaround comes, we’ll be prepared.’’”

So, the company invested in customer service management software and in a sophisticated research program, among other things. “That actually turned out to be great for us,” she says.

Kim Brown also says that when a recession hits is when you’ll find out if you’ve built a strong company culture. Employees will wonder if “you are a strong enough leader that you are going to get us through this,” she says. “Culture is important, especially in a recession. People are scared.”

Plan early and focus on expenses

Jason Schilling, a manager with Cummings, Keegan & Co. P.L.L.P, agrees that business owners should have started thinking ahead about a recession as early as yesterday.

“You know it will eventually come,” he says. “One thing I like to talk about and think about is the best time to plan for it is when you are having great years.”

Part of that planning involves saving cash or investing in technology to make your company more efficient through downturns. Clients that carry inventory, he says, should try running a bit leaner. “When times are bad you can reap the benefits,” Schilling says. He tries to meet with his clients two or three times each year to hear what they are working on or to get their outlook on the future. It’s a fine balance, he adds.

“You want to be in growth mode,” he says. “You also want to protect on the other side. Finding the good balance is great.”

In addition to potentially investing, Schilling suggests meeting with advisers to see what expenses could be cut. Don’t, he

says, cut into technology investments or, for some companies, research and development activities. “If you cut back there it will be to the detriment,” he says. But look to trim discretionary spending.

“Start seeing where we could be more efficient,” Schilling says.

Narrow the focus, evaluate employees

Small businesses should take the eventuality of a recession coming as a reason to do some big-picture analysis of what is working and what isn’t, says Michelle Beck-Howard, human resources adviser and client advocate at G&A Partners.

Where is the business going to stay? Are there areas the company might want to start phasing out? How can you make the strong points even better? And look at your employees the same way. Can you create a more agile workforce with cross-training?

“How can you make the most out of the workforce you have,” she says. “What are those types of things that will make your business even stronger now, so if the recession does hit, you’re going to come out stronger anyway. You’ll really come out ahead.”

From a staffing perspective, try to avoid laying people off, if possible. Some companies that did in 2008 suffered a hit to their reputation for how they handled layoffs during the last recession. It’s always better to try coaching, counseling and disciplining before firing for performance reasons. And with an economic downturn, a better approach might be seeking or implementing a temporary salary cut.

“You want to be transparent in your reasoning for doing it because you need to get to a certain sustainable bottom line,” she says. “Focus on sustainable, not just staying profitable. That kind of message can be disheartening.”

While that may help get employees on board in the shortterm, Beck-Howard advises that being a good employer that provides dignity, respect, advancement opportunities, challenges and communication during good times have a better chance of finding their workers loyal when they turn tough. “It’s those kinds of things that really start to connect employees to work for your organization,” she says. “Being connected then, in that deeper sense, really helps people stay committed and work even harder to make the organization successful during the downturn.”

Prepare but don’t panic

Greg Loeschke, managing partner at Lingate Financial Group, works with a lot of manufacturing companies. Many of his clients have weathered several recessions. For a newer owner who hasn’t been through it before, he suggests taking the time to really know the business, to understand its cash flow and to run a tight ship for planning purposes.

“Focus on the basic blocking and tackling in the business,” he says.

A lot of small businesses, Loeschke adds, can’t afford a chief financial officer or controller. So, it’s important for them to make sure they work with advisers to ensure they are on track. “Have an outside accountant that is doing more than just doing their taxes or their annual statements and can give some insight into their business,” he says. “Rely on a team of advisers.”

On the other hand, Loeschke adds, don’t prematurely give in to the gloom and doom. Currently the market is doing well. “All the lights seem to be green,” he says.

It’s important to prepare, but don’t go into a shell before necessary.

“Sometimes it might be easy to almost paralyze yourself getting so worried that it’s going to come that you miss opportunities for growth and expansion,” he says. “I sure wouldn’t want to see that be the case.”

Michelle Beck-Howard is human resources adviser and client advocate at G&A Partners: 713.784.1181; mbhoward@gnapartners.com; www.gnapartners.com. Kim Brown is president and Richard Brown is CEO and chairman of JNBA Financial Advisors: 952.844.0995; kim.brown@jnba.com; richard.brown@jnba.com; www.jnba.com. David Benusa is CEO of Froehling Anderson: 952.979.3100; dbenusa@fa-cpa.com; www.fa-cpa.com. Greg Loeschke is managing principal at Lingate Financial Group: 763.546.8201; gloeschke@lingate.com; www.lingate.com. Jason Schilling is a manager with Cummings, Keegan & Co., P.L.L.P.: 952.345.2500; jschilling@ckco-cpa.com; www.ckco-cpa.com. Dennis Von Ruden is president of General Equipment Co.: 507.451.5510; dvonruden@generalequip.com; www.generalequip.com.