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10 ways to take advantage of troubled times

Any change is an opportunity

For those who are prepared, the current recession represents an opportunity. If things are going along and nothing has changed, you have to work twice as hard to create opportunities. When things change, you have to change along with them; depending on what you do, this could result in opportunity or peril.

If there’s no change in your industry—if the same 10 companies are serving the same 100 customers—there’s not a lot of opportunity. When times get tough, one of those companies might be pushed out of business, creating opportunities for the surviving companies.
Everybody can survive in good times, when high profitability tends to hide a host of problems such as excess costs, excess returns and poor quality. Bad times weed out the poor performers.
Here are 10 ways your company can take advantage of these troubled times:

1. Upgrade production capabilities
   
   A recession can be an advantageous time to buy new or used equipment at very competitive prices. Many troubled companies are now selling their equipment at auction or through used-equipment dealers. You might also seek out distressed competitors and offer to buy their equipment.
   
   It’s a buyer’s market. With the large amount of used equipment being sold at bargain prices today, some new-equipment dealers are struggling, and have lowered their prices to be more competitive.
   
   Another plus: If you buy new equipment before Sept. 11, 2004, a new tax rule offers an added 30% first-year depreciation allowance.
2. Upgrade staff
   
   Today there are a lot of good people who are unemployed through no fault of their own. Now is the time to evaluate your staff and replace weak performers. For example, is your materials manager doing the best job possible? It’s no fun to fire anyone, but if you keep someone in a job he is not suited for, you’re really not doing him—or your company—any favors.
   
   Look at your staff’s capabilities and ask yourself, “If I were starting over again today, are these the people I would hire?” If your answer isn’t “yes,” consider replacing poor performers with one of the many capable people now looking for work, or worried about their job security.
3. Acquire a troubled competitor
   
   If you have a competitor who is in trouble, you’ve probably heard about it through the industry rumor mill. You may be able to get a real deal by acquiring a competitor who is struggling to get out from under his bank debt.
   
   One benefit of buying a going concern is that you gain assets such as trademarks, know-how and intellectual property. And for the price of the bank debt, you can acquire inventory and equipment—and essentially get a list of customers for free. Even if you don’t use the increased production capability right away, you’ll be ready when the economy turns around.
4. Acquire a troubled vendor
   
   Depending on your industry, it may give you a competitive edge to secure a source of supply. In the paper industry, for example, some products are hard to obtain. By acquiring a troubled vendor, you can lock in a source of supply. You may also be able to reduce your cost if you can buy the supplier cheaply enough. One strategy is to acquire a company upstream from your own—for example, an assembler of electronic equipment might buy a circuit board stuffer. This might also enable you to add on a new business or service.
5. Pursue troubled competitors’ customers
   
   When a company starts heading for trouble, their customers suffer with them. Deliveries might not come on time; they can’t always meet orders. Rather than taking a broad approach to your market, find out who your troubled competitors are and focus on their customers. But be careful: it may have been those customers who got your competitors in trouble. There’s nothing to be gained by pursuing their troubled customers.
6. Fire customers
   
   Especially if your cash is tight, you need to take a hard look at your customers and make sure you’re making money. Consider raising prices and reducing terms on your marginal customers.
   
   If your customers are in trouble and can’t go anywhere else, they’re going to have to meet your prices and terms. And if they can’t, let your competitors have them.
7. Negotiate long-term price concessions from suppliers
   
   If companies in your industry typically lock in long-term supply contracts, now may be the time to negotiate a better deal. There are two possible approaches in dealing with a supplier in trouble. You could say, “I don’t know whether you’re going to be around in the long term, so I’ll go to one of your competitors,” which could put the supplier out of business today. Or, you could help the supplier by negotiating a long-term contract at a favorable price, which may help get the supplier out of trouble.
8. Take advantage of cheaper advertising
   
   Especially at a time when a lot of your competitors may have pulled back on their advertising, it makes sense to keep your name in front of your target market. When people consistently see your name—and not those of your competitors—you will be perceived as a winning company. You can also get advertising space a lot cheaper now because so many companies have cut back on their ad budgets, and print and broadcast media are hungry for ad revenue.
9. Renegotiate long-term leases now
   
   If you have a lease coming due in the next year or two, you can help your landlord out by signing a long-term lease. And you’ll help yourself by getting a lower rate than you would if you waited until the real estate market turns around.
   
   The soft real estate market also makes this a good time to look for a new place to move. There’s a glut of space on the market now. The last thing landlords want is an empty building; they’re desperate to make deals.
10. Evaluate your strengths and weaknesses
    
    Now is the time to evaluate what your company does well and focus on those strengths—and pinpoint your weaknesses and fix them. Tough times tend to focus people’s energies; employees get serious about making improvements when they’re afraid of losing their jobs.

The key point in tough times is to adjust. By moving ahead and making gains, you’ll reap benefits now—and even more in the future.

Patrick F. McNally, Partner in Charge of Corporate Finance Consulting, Blackman Kallick. Pat can be reached at 312-980-2934 or pmcnally@BlackmanKallick.com.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.