Tag Archives | economy

Capital Spending Indicator Down

Orders for durable goods fell for the second straight month in February according to the Commerce Department, as did orders for non-defense capital goods. (Bloomberg) Unfortunately, the capital spending indicator down is not good news for business.

Capital Spending Indicator Down

Orders for machinery fell by the largest amount since the Commerce Department began tracking them in 1992.

This is not a good sign moving forward; however, you can prepare using our SWOT Analysis Execution Plan inside the SCFO Lab. Click below to learn more about what is inside the SCFO Lab.

Capital Spending Indicator Down

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The Subprime Mess Claims Its First Blue Chip Victim

JPMorgan Chase announced today that it will acquire Bear Stearns for $2 a share today. On Friday, Bear Stearns’ stock price closed at $30.00 on Friday. This is already down close to half over its Thursday close. In addition, it is 81% down from its high for the last year of $159.36. The subprime mess claims its first blue chip victim.

The Subprime Mess Claims Its First Blue Chip Victim

Bear Stearns, a major investment banking, securities trading, and asset management company and a Wall Street institution was forced on Friday to accept a loan package from JPMorgan Chase and the US Federal Reserve System on Friday. This loan from the Fed represents the first time the Fed had bailed out a non-bank financial institution since the Great Depression.

The plot thickens.

The Subprime Mess Claims Its First Blue Chip Victim

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Banks Tighten Credit Standards

An article in todays’ Wall Street Journal highlights how banks tighten credit standards across the country’s banking community. The author cites interviews with bankers indicating a change in the amount of risk that lenders are willing to take. Later in the article the author cites sources that say they haven’t seen a credit crunch. So which is it?

Banks Tighten Credit Standards

The short answer is that it depends on your local market. How is the local economy performing and how competitive is your banking community? Regardless of the current lending environment you can count on banks‘ underwriting to become more conservative. Why? Because the federal banking regulators will begin to tighten the rules for the entire banking community not just local markets.

Prepare for This Changing Environment

As a CFO or controller how can you prepare for this changing environment? The best way is to get your financial house in order. Improve your cash management reporting. Prepare a cash flow projection to give to your banker. Prepare a strategic plan to manage and predict your capital needs months in advance. Finally, take your banker to lunch. Let him know what is happening in your business so there will be no surprises.

By improving your cash management tools, forecasting your needs and communicating with your banker you can actually weather the coming credit crunch.

Download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

Banks Tighten Credit Standards

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Banks Tighten Credit Standards

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Defend the Bottom Line!

During a downturn in the economy the overriding goal of the Chief Financial Officer and management team is to defend the bottom line or profitability of the company. At a minimum you should achieve break even. The economy ebbs and flows like the tide. During the good times a company should generate profits and pay down debt. During a slow economy they should do everything they can not to give up the profits they have earned.

How to Defend the Bottom Line

So once you find yourself in an economic downturn what should you do? You should first recognize that you can’t save your way to profitability. Cutting costs though a useful tool will not get you to your goal.

The first step you should take is to get a good handle on cash and cash flow. You should prepare a daily cash report and a twelve month cash flow projection. You cannot run out of cash! Most managers fail to shift their focus to cash management until they have run out of it. By then it may be too late.

The next step may seem counter intuitive but is key to prospering in a downturn. You should increase your marketing expenditures and efforts. Most companies do the opposite! They slash advertising expenses and lay off salesmen to cut costs. If anything you should be doubling up on your sales effort! In a downturn there are still sales transactions taking place. There are just fewer of them. To maintain your revenue stream you need to get a larger percentage of the market. That takes more effort, not less!

Finally, to survive a downturn remember rule number one: Don’t lose money! So restructure your costs to achieve break even with the revenue stream you are generating. The goal is to survive to fight another day! Improve your pricing – and your profits– by downloading the free Pricing for Profit Inspection Guide.

bottom line

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bottom line

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If They Will Buy, Then I Will Sell!

If they will buy, then I will sell! Or stated another way, if I can sell it then buyer beware! That seems to have been the motto for the sub prime mortgage industry. Over the past five years a looming crisis has been in the making. Mortgage brokers would originate the loan then immediately pass on the risk to the investors. Few would keep the loans for a month let alone ninety days. Consequently, they were assuming little risk and had no incentive to police the quality of the loan.

If They Will Buy, Then I Will Sell!

Some people are questioning whose responsibility it was to police the market. At some point in the cycle someone needed to say no to the level of risk being assumed. Some say we should have government oversight. I say it is the job of Mr. Market!

The only thing that keeps people from taking stupid risks is the fear of loss. Until recently we haven’t had that in the past five years. During this time period we have experienced low cost of capital, high liquidity and increasing productivity of employees. Now the market forces (i.e. losses) are policing the sub prime markets.

Other Markets in the Economy

The real question is what other markets in the economy are in line to be disciplined? The economy is beginning to look like a slow moving train wreck. This scenario is not unlike the dot com bust where few of us were directly in the business but all of us were effected. Now is the time for entrepreneurs and their CFOs to take action to weather any possible storm. Download the External Analysis to gear up your business for change.

If They Will Buy, Then I Will Sell!

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

If They Will Buy, Then I Will Sell!

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New Home Sales and Prices Take a Dive in August

A significant source of growth in the US economy in recent years has exhibited further weakening per a Commerce Department report released this morning. Let’s look at new home sales and prices.

New Home Sales and Prices Take a Dive in August

New home sales and prices fell to their lowest rate in seven years and new home prices had the steepest one year decline since 1970 along with rising new home inventories. Additionally, homebuilders KB Home and Lennar both reported dismal performances for their 3rd quarters.

On a more upbeat note, the number of new unemployment claims declined to the fewest new claims since May and the US GDP grew in the 2nd quarter at an annualized rate of 3.8%.

Still, the storm clouds seem to be gathering.

New Home Sales and Prices

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Is the Tide Beginning to Fall?

Today I attended a luncheon for the Turnaround Management Association of which I have been a member for approximately 10 years. During this time I have seen good economies and bad. For the past 3 years the economy has been so good that the TMA meetings looked like a Maytag repairmen convention. Today was different! The question I want to ask is, “Is the Tide Beginning to Fall?”

Is the Tide Beginning to Fall?

The room was packed with people I had not seen in 6 months. What was more thought provoking was the speaker. Not what he had to say but his recent career change.

Trained as a bankruptcy attorney the speaker had spent the last 6 years as an investment banker. Sometime during the year his firm was sold to Merrill Lynch. He recently left Merrill Lynch to join a major law firm. Doing what? Bankruptcy law!

So when the investment bankers start becoming bankruptcy attorneys maybe we should be watching the economy more closely!

Check out the warning signs of a company in trouble.

Is the Tide Beginning to Fall?

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