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June 2010
What can we expect next?
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 By David J. Gaino, CPA, MTax, PFP
Chairman
In our daily travels as CPA’s, we visit with many clients each week. The topics and questions raised are frequently the same. What do you see out there? Is the economy picking up yet? Will the recovery hold?
Clearly, in the last 90 days, the signs have been somewhat positive for the first time in over two years. Stock market volatility aside, companies seem to be seeing an increase in requests for quotes as well as an increased level of orders. The housing tax credit appears to have put some spark back in home sales. Inquiries about how to claim tax credits in the Hire Act point to an interest in hiring more staff.
Companies experiencing growth are starting to believe the recovery is real, and assuming a sustained recovery has begun, they are beginning to ask questions about what their next moves might be. Here are areas every company should take a look at right now.
Staffing Considerations
One very early sign of economic recovery is the attempt to fill positions that were left open, or created, by reductions in workforce. During the recent recession, many companies cut back or froze compensation and benefits, an action which may now expose them to employee turnover as other companies with “leading” economic engines (businesses that tend to recover early in a cycle), start to fill openings and prepare for expected growth.
The key question at this point is “have you protected your most critical resource-- your people”? I think most companies believe they need more time to heal their balance sheets before addressing staffing needs. However, waiting too long to act could cost you top talent.
Financial Position
Banking and credit have become household, not just boardroom, topics in recent years. A critical component to managing your business in ANY economy is the management of working capital. During a period of economic slowdown, it becomes more obvious and demanding to accomplish. We clearly see signs that banks have begun to lend, but certainly with a high degree of caution. So where does that leave companies who’s balance sheets have been depleted while “hanging on” during the recession?
It can be extremely difficult to fund increases in inventory and accounts receivable, along with resumption of compensation and benefits, and the demands of deferred capital expenditures. I addressed the concept of projecting working capital needs, aka “dry powder”, in this column at the outset of the recession. Monitoring and forecasting those needs is just as, if not more critical, in a recovery. Income statements will show increased profit levels sooner than your cash balances will bounce back due to the demands of other working capital components.
“Normal” Operations
While we’d like to breathe a collective sigh of relief that things will soon return to normal, the new normal may not look that much like our “normal” of 2007 or 2008. Companies that recognize that some of the business lost in the recession may not return will be in a better position to calibrate their capacity to optimize economic performance. Investments in equipment, new technology, and continuous improvement efforts such as Lean Enterprise initiatives, will be the deciding factor on how we will be able to grow our businesses into the next economic cycle.
Business Planning
Formal planning should be a part of every company’s agenda. During the last two or three years companies put many portions of their strategic plans on hold and quite appropriately, went into survival mode. I believe it is now time to come back to planning, be it strategic, succession or otherwise.
The need for succession planning is far more prominent than ever before. Over the next few years we anticipate that forward thinking companies will begin to address business succession from current management teams to the next generation, as it often takes years to accomplish. As companies are re-born when coming out of the recent slowdown, there is no better time to address this key area of planning. Our recent article series (1, 2, 3 and 4) on succession planning offer some thought provoking ideas.
As always, we stand ready to discuss ways Apple Growth Partners can help identify and deliver healthy growth ideas for your business.
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