Recessions are depressing. They also are not that rare. Since the founding of this country, there have been at least 24 recessions, including the present one. Some of these recessions were so severe they were dubbed depressions. There was the “Long Depression” (23 years from 1873 to 1896), the “Great Depression” of the 1930s, and the country’s very first depression from 1807 to 1814. Others recessions were called “Panics.” Some folks count the savings and loan crisis and economic downturn from 1987 to 1989 as a recession, others don’t. Go figure.
There are a couple things these recessions have in common: Banks fail, stock markets collapse, unemployment rises, etc. Lately, there have been some new recession factors: Oil prices, the dot-com bubble collapse, the housing market collapse, etc. Oh, and there also are business failures.
However, research shows that only about 9% of business failures are caused by external economic factors such as recession. The rest are caused by internal factors such as not knowing where your business stands.
I’m giving a presentation this month at the Xerox Quick and Franchise Thought Leadership Workshop in Rochester. The title is Habits of Recession Survivors. Quite frankly, I will be cribbing a lot of material from our stable of contributing writers who preach monthly about good business habits.
I recently ran across an online article by financial expert Neil Wadsworth who pointed out the five things businesses have failed to learn from previous recessions.
- Knowing where they stand. You have to know your ratios, costs, and profitability and plan accordingly.
- Ignoring early warning signs. According to Wadsworth, eight out of 10 failed businesses ignored early warning signs such as falling margins, SPE, and deteriorating finances.
- Failing management responsibilities. Planning, training, delegation, and organization are essential management responsibilities.
- Having inadequate capital. This is an unfortunate reality for many small businesses.
- Failing to develop. Wadsworth says that business owners need to think of developing new products and services, finding new customers, utilizing technology, and developing people “as a continuous process, and not, like the annual staff Christmas party, an annual event.”
In essence, it is crucial to know where you are and the best way to get where you want to go. It reminds me of the story of the lost motorist who pulled his car over to ask a young man how far it was to a certain destination. The boy said: “If you keep going the way your are going it’s about 25,000 miles. If you turn around it’s about three miles.”
So there you are.