Business in Economic Turmoil
Painting the economic picture is surely an as much an art as it is a science – even in periods of economic stability. The challenge is multiplied in periods of volatility, like the one we’re going through now. The so-called experts provide their perspectives on markets, jobs, currency, real estate, consumers, GDP, and all other economic indicators. Each brings their forecasts and solutions that go from massive state intervention to not interfering with market forces. And their offer advice … The truth is that no-one (or almost no-one) was able to predict the financial crisis that is rocking our economy since September 2008.
On May 7 2009, the TSX closed above 10,000 – where it stood six months ago. Canada created 35,000 jobs in April, according to Statistics Canada. Based on observing our prudent fiscal policies and sound management of financial institutions, the IMF says that Canada is in a better position than other industrialised countries to weather the storm. Many commentators are already talking about recovery, while others are less optimistic. How do we connect of all these statements and figures to the realities of everyday business? Should we now start reading the horoscope instead of the business pages?
In fact, the impact of the current economic turmoil on businesses is a function of a number of factors including sector of activity, financial health, and management skills. Anecdotal RGA information reveals that the vast majority of its 600 members are impacted by the downturn. Members are reporting layoffs and difficulty in financing new projects.
However, there are a number of businesses that are doing rather well in this economic climate. Their success is closely linked to consumer behaviour which changes radically from times of stability to times of turmoil. Example: if you’re in the car business, you will now be in a better position in repairs than in new car sales. Same for the food industry – the high-end restaurant may be more vulnerable than the grocer. And again for housing – demand for repairs remains strong while new house sales have slowed down from an overheated market. The consumer retrenches in terms of financial engagements – seeing uncertainty for the future. It’s another vision of time. If the economic climate inspires confidence, the consumer behaves with a longer term perspective and does not hesitate to acquire goods and services that can be amortized over time. Conversely, the vision shortens as perceived possibilities of payment for the future are reduced.
Another factor – the amortization of capital assets. Typically, a young business will have larger operating costs that become amortized over time. Established businesses are more likely to be further ahead in this regard, with lower operating costs. This can mean the difference between profits and losses.
At the end, the organisation with the ability to retain competent staff, to plan and manage finances and inputs, to continue developing business, and to keep the focus on the objective will have a greater chance of getting through the storm.
Moral of the story – in business we control a good portion of the elements of our success. Other elements are somewhat more elusive. The idea is to play our best elements smartly – including luck when it passes by.
