Make Your Money During Bad Times by Preparing for Good Times

During one of the recessions prior to 2008-2009, I was meeting with a business owner who said to me, “You know, now is when I make most of my money.”

Then he smiled at me.

He went on to say, “The key decisions made during an economic downturn are what really drive my profitability post-recession. We get sloppy during the good times.”

That comment has stayed with me.

His point reminded me of Seneca, who said, “Luck is what happens when preparation meets opportunity.” In business, laying the groundwork for success often takes place during bad times.

As I listen to and read positive economic forecasts, I find myself having mixed emotions. Trust me, I like good news. But I also get progressively more nervous when I see companies ramping up too quickly and too much.

For example, if you added up the 15 automotive companies’ projected U.S. sales at the time, you got 14.5 million units. That was 1.8 million vehicles higher than the number sold in 2011 and 700,000 higher than the estimates of the forecasters. Every day, I was reading about companies looking for thousands of new employees.

Really?

My challenge to business owners is this: try to understand why you are adding team members.

Are you slipping back into pre-recession bad habits?

Are you adding people based on booked business or hoped-for business?

Are you growing because the company is truly ready, or because everyone else seems to be getting optimistic again?

In Jonathan Byrnes’ book, Islands of Profit in a Sea of Red Ink, he states that 40 percent of every business is unprofitable. That is a sobering thought.

Instead of immediately hiring additional people, should you be looking more carefully at where the real profits are coming from? Should you be shutting down an unprofitable division and redeploying those associates to an expanding business segment? Should you be strengthening your best opportunities before adding more complexity?

These are not always easy questions, but they are important ones.

One of the great risks in a recovering economy is that leaders forget the discipline they learned during hard times. They survived by watching cash, questioning assumptions, serving customers carefully, managing people thoughtfully, and making tough choices. Then, when conditions improve, they start acting as if the good times will last forever.

Once, I heard an economist say, “We usually overreact to a bad economy, thinking it will never come back, and we overreact to a good economy, thinking this is going to last forever.”

That feels about right.

For owner-operated businesses, the lesson is not to avoid growth. Growth can be very good. The lesson is to grow with discipline. Know where your profits are. Know which customers, services, divisions, or products are creating value. Know where you are losing money. Know whether your team has the capacity and systems to support the growth you are pursuing.

Before you make any drastic moves, remember this:

Try not to lose all the money you made during the recession.

Good times are a wonderful opportunity. Just do not let them make you sloppy.

Growth is good, but undisciplined growth can quietly destroy profitability. If you want help pressure-testing your next move, we can help.