Doesher Advisors Guide

March 2, 2012

// I Make My Money During Bad 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" — and 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." His closing comments reminded me of Seneca, who, in 65 B.C., said, "Luck is what happens when preparation meets opportunity." Laying the groundwork for success takes place during bad times.

As I listen to and read all the positive economic forecasts (trust me, I like good news), I am getting progressively more nervous about companies ramping up too quickly and too much. (For example, if you add up the 15 automotive companies' projected U.S. sales, you get 14.5 million units — which is 1.8 million vehicles higher than the number sold in 2011 and 700,000 higher than the estimates of all the forecasters.) Every day I read about companies looking for thousands of new employees. Really?

So, my challenge is to 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? In Jonathan Byrnes' book, "Islands of Profit in a Sea of Red Ink," he states that 40 percent of every business is unprofitable. Instead of hiring additional people, should you be shutting down an unprofitable division and redeploying the associates to your expanding business segment?

The other day I heard an economist say, "We usually overreact to a bad economy (i.e., it will never come back), and we overreact to a good economy (i.e., this going to last forever)."

Before you make any drastic moves, remember this: Try not to lose all the money you made during the recession.

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