diversification, how funders tighten credit

selectively, and how to take advantage of select opportunities.

Surviving A Recession

By: Linda P. Kester

Many of today’s brokers and lessors have never experienced a recession, because of that they may get caught up in the negativity created by the media and feel helpless.  The world is not coming to an end, the economy as a whole has just stopped growing for a brief period. A few areas will be hit significantly, most will not be affected that dramatically.  There are ways that you can make sure that you are not dragged down with the unfortunate minority.  In my opinion there are three key themes you need to focus on to make the best of market conditions we haven’t experienced in ten years.  Prepare for tough times when you feel they are coming, react quickly and appropriately to what is happening and return to a focus on the fundamentals you may have strayed from during the easier times.

            Okay, you like the rest of the business community expect tough times are ahead.  Accepting that, what do you do next?  One of the basic strategies is also one that people stray away from during the “good” times.  Whether you are a broker or a funding source you should strive to diversify as many aspects of your business as practical.  Different sectors, geographical areas, lines of equipment, etc. are impacted differently during a recession.  The less concentration you have in any one area leaves you less vulnerable if that area is impacted more than others.  We all know what has happened to the Dot Com sector and if you had concentrated in that business you probably are already feeling the sting of not diversifying your business by now.  Another example would be the trucking business.  Spurred by the high cost of fuel, many in that business are struggling and if you are in that business you may have felt this through higher losses or lower volume.  Even if you think you can buck the odds and still get volume from your core businesses in spite of a recession, remember, during tougher times funding sources tighten selectively.  Instead of tightening across the board they tend to select areas that they perceive to be struggling and tighten aggressively in those.

            Look to see how many aspects of your business need more diversification.  What would happen if one or two of your best vendors shut their doors?  What if your best sales rep quit?  Are you concentrated in one sector that will feel a credit squeeze more than others?  There are a lot of changes happening with funding sources.  Are you relying heavily on one or two? A recession is defined as a period when the economy is shrinking, albeit slightly.  In reality, though, what happens is some sectors shrink dramatically while others actually continue to thrive.  Diversifying you business will help keep you in the latter group.

            Another way to prepare yourself for a slowdown is to know your funding sources and manage the relationship properly.  Are the lessors you saw last year with the lowest rates and largest credit appetite still there?  If not then maybe those with the same strategies will not be around next year.  Try to find out which of your sources is healthy enough and has the right strategies to stay in the business for the long haul.  Once you have selected those, manage the relationship so that you will both keep it going through tougher times.  Send them a good mix of credits, not just the tougher ones and when possible help them out with problem accounts.  While this is basic stuff, the brokers who do this properly with the right sources will be the ones who continue to get their business underwritten during tougher times.  Remember, when funding sources tighten they do so selectively and this applies to their sources of business as well as the credits.

            In a recession as in any time of change there are select opportunities.  If you have prepared yourself properly so that you business remains healthy you can take advantage of them.  Many of your competitors will not prepare themselves properly and will either pull back or even exit certain markets or customers.  This is the time to take advantage and get additional business from those customers.  It won’t be easy but vendors remember who was there for them when they needed it.  Vendors tend to lose trust in sources that are in then out of the business, they like consistency.  Another way to take advantage of competitors that are shrinking is to hire displaced or frustrated employees.  Sometimes this is the best way to take business away from the competition.

            In a declining economy the government tends to lower key interest rates, take advantage of this.  A funding source with whom you have a good relationship with will generally pass on all or most of their lower cost of funds.  Use this selectively to either keep vendors that aren’t getting as many credits approved happy or to get in the door with some of those customers who are disappointed with your competitors.  Of course if you don’t have to lower rates to keep some of your business use the increased margins to help offset the lower approval rates you may be experiencing.

            Get back to the fundamentals of your business.  This is probably what helped you grow your business and will definitely get you through more challenging times.  During periods of prolonged prosperity people tend to get lazy.  Sales people tend to get away from prospecting and funding sources and credit approval are easier to come by.  The time to prospect is when you still have business, not when you wake up one morning and realize you have nothing coming in the door.  You know how long it takes to develop a new account properly. 

            Returning to the fundamentals of your business also requires training.  Don’t let your employees stumble during these uncertain times.  Some areas that may need fine tuning are discipline, motivation and overcoming objections.  Refresher courses in these areas will pay off if some of your existing customers slow down or simply go away.  Give your employees these tools and they can take control to ensure that you hold on to your existing vendors and lessees.  In addition, if approvals are tougher to come by then maybe courses in credit presentations are needed.  When credit is looser people tend to get the bare minimum in applicant information.  Now may be the time to educate your staff on understanding credit and working the tougher transactions.

            There is a possible recession looming out there.  If and when it happens some people will be harmed.  They will inevitably blame the economy.  They are probably right now maintaining the states quo and simply hoping it doesn’t happen.  Prepare now and you will find that you will not be affected very dramatically.  This will leave you in a stronger position and enable you to react to changing times and take advantage of select opportunities.  Returning to the fundamentals of your business will help you take advantage of weaker competitors, develop new and varied sources of business and create the opportunities for success that will actually make the next couple of years very profitable.