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Preparing for our new normal economy

Russ Kathrein - Leadership

Ask anyone who went through our industry depression in 2008-09 what they would have done differently, and they’d probably tell you they wish they’d made some of the hard decisions much sooner. For the past two and a half years, our industry has had the good fortune of being extremely busy (and profitable), while the rest of the world was either standing still or locked up. Unfortunately, all good things must come to an end. No one is sure what 2023 will look like, but most of us agree that it will not be the blow-and-go environment we had in 2020 through 2022.

There is an old axiom that says a rising tide raises all ships. That means that whether a ship is well run and rides high in water or is shoddily run and is so low in the water it might sink, the rising tide will carry both over the treacherous rocks. Well, we’re looking at a falling tide, and that means all those rocks are going to be much closer to the surface and will sink some of the ships that have been poorly run.

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Hopefully you’ve used the past two years to improve your business, but if you’ve just been riding the high tide, it’s not too late to start preparing for when things are challenging. The obvious place to begin is your balance sheet. Look at your financing and start paying down your debt with the cash being freed up as your inventory and accounts receivables balances go down with decreasing prices. Look at your long term financing. Make sure you have access to enough capital to ride things out should things get tough. Also, look at your credit practices and procedures. Start a process of calling the immediate past-due customers to find out why they missed their payment. It will give you an early indicator of when a customer is getting into cash flow problems, and it will make you the squeaky wheel that gets the oil first.

Something a little less obvious—but much more strategic—is to take an objective look at the various parts of your business now before things possibly get emotional. Rank everything. Start with your employees. Don’t look at pay or tenure but instead at who you could get along without if they leave versus who you could not replace. Think about who can handle multiple responsibilities or tasks within your operation. Do all this before you’re under an emotional gun of trying to keep someone from leaving or having to make the hard choices of cutting staff. Rank your customers, not by sales or gross profit dollars generated but based on who are the most loyal and always prioritize paying you on time. Which ones tie up the least number of resources? Who is willing to work with you when you can’t get them what they need when they need it? Also, think about which customers have the most sound business model and are servicing the parts of the market that might remain strong.

Last, rank your equipment. If things slow down, don’t just park your excess equipment in the back of the yard. Old Bessy costs money to license, insure, and keep running, and those bills will nickel and dime you to death.

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Taking the time to think these things out now and formulate a plan will have you prepared for whatever our new normal is. If things slow down, you will be quick to react. If things stay level, your ship will just ride that much higher in the water and provide you with the peace of mind that your business is ship shape.

Russ Kathrein is with the LBM Division of Do it Best Corp. based in Fort Wayne, Indiana.

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