Preparing for Recession

Jun 07, 1999

Let’s all hope it never happens. But as anyone with a few gray hairs can tell you, another recession can, and probably will, occur. So what are you going to do about it? Here are a few thoughts on being prepared: Keeping your banking relationships. When bad times strike, that’s when you’ll probably need your bank the most. But that’s also the time when it’s most difficult to get credit. So make sure you do what you need to do to keep the banking relationships you already have. If you own your building, I suggest that you keep your building financing at a different bank than your receivable line of credit. Your property could be devalued and the bank could decide you don’t have enough equity. This will jeopardize your line of credit if it’s at the same bank. I also suggest that you spend the time to form a relationship with your lending officer while you are still in good shape. Having friendships with the right people at the bank can help stave off the formula-driven bankers in some cases. Maintaining employee morale. It’s not good enough for the most motivated and capable staffers just to have a job during a recession. And these are the people you cannot afford to lose. Yet, bad times most certainly mean that there’s not a lot of raise and bonus money to go around, and the company most likely isn’t growing and creating a lot of new positions to promote people into. So what do you do about it? First, I would make darn sure that you don’t implement across-the-board pay freezes or benefits reductions that hurt the best people, those with the greatest number of options. I would also make sure to cut all deadwood. Keeping those who do not work as hard or get as much done as the rest of the people on your payroll will most certainly hurt morale in the firm. And I would be very sensitive about new perks for principals, more expensive company cars, or lavish personal workspaces. In bad times, employees will latch onto these things and use them as a scapegoat for all of their frustrations about not moving ahead. Cutting costs. Know what you are going to cut before you have to do it. Beyond the obvious expenses, such as too much office space (it’s always there in a recession), company airplanes, company yachts, or company ski condos, I would take a hard look at insurance expenses. Many times, there’s money to be saved by reclassifying your work mix as listed in your errors and omissions insurance or by shopping your health coverage. The big expense, obviously, is in labor. Typically (and rightfully so, I might add), companies look to unbillable staff as the first place to cut. Then the firm looks to low-level technical or design staff. The problem with this approach is that it often results in a top-heavy firm that sees eroding multipliers from having too many highly priced and inefficient staffers doing jobs that less expensive people can do cheaper (and better). When you look for the fat at the top of the firm, what you usually see are underutilized principals. We have worked with a number of firms in trouble that have 15-30% principal chargeability company-wide, yet tell us there’s no way they can cut anyone. I don’t buy it. I say there’s no one they want to cut, but plenty who could go. They just don’t want to deal with it! Letting people go. If you do have to make cuts, do it with dignity. Don’t call everyone who is getting the ax into one room all at once (I’ve seen that). Do make your cuts on the same day. Nothing is worse than layoffs every week for eight weeks! That absolutely kills morale. I would also make sure to try to help out anyone who is let go with his or her job search. These folks weren’t canned for lack of performance, so be nice to them! And if they are let go for poor performance, shame on you for letting it go on so long! Investing for the future. When times are the bleakest is precisely when you need to spend some money on whatever it is that will create the future, be that a new marketing database, better firm-wide networking, new services, or new office locations. Do a few things that you can risk a little money on, but that could pay off big. Because when the good times return, you’ll be glad you did. Originally published 6/07/1999

About Zweig Group

Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.