Survival depends on keeping business in equilibrium

We’re already four years into the recession that never ends. The government is befuddled They’ve thrown everything they had at the recession, including the pots and pans, and it didn’t respond. Everything slid off like water off a duck’s back. Now we’re out of money, we’re out of ideas and we’re bankrupt. If this is a simple recession, it’s the Godzilla of recessions.

I’ve come to the conclusion it’s not a recession at all. I believe it’s a seismic shift to a new world order. In fact, l believe we’re dealing with two separate and distinct seismic shifts occurring simultaneously. Each has the capacity to create turmoil for decades. 

Seismic shift No. 1: Free- spending, debt-ridden Western consumer nations are being supplanted by their storekeeper creditors on the Pacific Rim. For too long we’ve been living on what we borrow rather than what we make, and now it’s time to pay the piper.

It’s also time historically. Spain pulled the world out of the Middle Ages in 1492 when Columbus discovered America, but didn’t become a formidable economic power until Spanish galleons began hauling gold back from America after 1550. France became the most powerful economy around 1700, Britain around 1815 and the United States around 1915. It’s now 2011.

Such shifts begin when a vibrant new economy rises up, eager to attain power and wealth, and ends a century later with a slide into economic decadence.

Consider this. We were founded not on ties of blood, soil or ethnicity, but on great concepts that we’ve apparently abandoned. For years we’ve borrowed money from the Pacific Rim and used it to pay slave lords for cheap goods to conserve our standard of living while crushing our own manufacturing sector and living off the blood of indentured slave laborers. We’re militarily adventurous with armies in 150 countries, currently fighting six wars and bombing nations with which we’re not at war. We’re hated by the whole world, except Israel, and they don’t think much of us, either. We’ve ruined Mexico by turning it into a staging ground for drug smuggling and imported cheap Mexican labor to supplant our own citizens while we tax the productive to pay the unproductive.

Seismic shift No. 2: Ten years ago the Internet was this weird place called cyberspace. Now it’s part of your everyday life and your patients, clients and customers are increasingly abandoning you for the Internet in search of cheaper, better and more convenient goods and services.   If you don’t think it’s happening to you, you’re wrong. Everyone’s competition lurks on the Internet. Worse yet, every day in every way, your Internet competitors are figuring out more ingenuous ways to compete.

The point is this: If you’re waiting and praying for recovery, your business could evaporate under your feet as you wait. But you can take steps to survive economic turmoil and thrive in hostile environments. The steps are analytical, driven by facts rather than hunches.

To simply survive, quit bleeding working capital. Businesses fail because managers let working capital erode. No business with adequate working capital has ever failed.

The secret lies in the sea of information you’re swimming in, most of it in the life blood of your business, your accounting system. Find the key movers, monitor them and make adjustments as needed, first to simply survive, then to make your business run like a finely tuned Stradivarius. Your goal is to maneuver your business into equilibrium amongst the conflicting forces battering away. If you’re worried about survival, you’re bleeding working capital. If you’re bleeding working capital you’re not at equilibrium. When that happens, conflicting management actions make it almost impossible to restore equilibrium. Remember the old bromide “Every business failure is a management failure.” To put a business back into equilibrium, you generally need outside help. 

The outlook might not be great, but lots of people get rich during turmoil. Some people say that’s the best time to beat your competition. I have said since the 1980s that turmoil is the easiest time to gain market share.

Right now the best asset is cash flow, which means protecting your business or professional practice with every effort. In the long run, it’ll be great to own debt-free land and buildings, especially farm ground. But in the meantime, it’s pure cash flow.

Robert Ellis is principal at Ellis CPA, a Grand Junction-based firm that serves closely held businesses throughout the United States. For more information, call 241-5040 or visit www.elliscpa.com.
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Posted by on Jul 13 2011. Filed under Contributors. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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