Tag Archives | recession

Subprime Mess: Is that a Mushroom Cloud in the Distance?

If you are like me you are having a difficult time getting your arms around the subprime mess or crisis. I am not sure how bad it is; what it is going to do to me; and what action I should take, if any? I hear all of the problems in the news, but, as of yet, it hasn’t affected me. Finally, I after much angst I came up with an analogy that helps me visualize the situation and how I should react.

Subprime Mess: Is that a Mushroom Cloud in the Distance?

Picture yourself standing outside your home. Fifty miles away, in the distance, you see a mushroom cloud from a nuclear blast rising into the atmosphere. Once you get over the initial shock you realize that it is far away from you. In fact, the sun is shining and everyone is going about their business.

The second thought that comes to your mind is: “I wonder which way the wind is blowing?” Is the nuclear fallout coming towards me or away? How bad is it going to be? For those individuals at ground zero it is pretty bad!

I visualize the subprime mess as a nuclear bomb that has exploded in our financal system. Personally, I don’t have any direct contact with industries affected by the crisis. The sun is still shining on my business and we are making money. But I am keeping an eye on that mushroom cloud in the distance! I know that as it spreads through the economy some fallout will affect me. In the meantime, we are spending causiously, hiring selectively and marketing aggressively.


Don’t Let Your Business Lose Money for Too Long!

Over the holidays we were asked by an investor to examine a company and determine if it could survive. We reviewed the financial records and met with management. At the end of our review both we and management agreed that we were about a year too late in saving the company! What difference does a year make?

The Difference of a Year

What was different one year ago? The company had a profitable business surrounded by money losing products and high overhead. Action could have been taken to shed the unprofitable business, reduce expenses and grow the profitable sales. Unfortunately, time had run out!

Don’t Let Your Business Lose Money for Too Long!

One year ago the company had positive working capital and a good relationship with their vendors. Over the past year, they consumed their cash and disappointed their vendors to the point that no one was willing to work with them. The best analogy would be to imagine you are flying an airplane and the engine stops. As the plane plummets toward the earth you don’t wait until 1000 feet over the ground to bring it out of a dive! Same thing with a company!

If you find your company in a dive and losing money you should remember two rules:

Rule #1: Don’t Lose Money!
Rule #2: See Rule #1!

It is imperative to take corrective action early in the crisis. Most entrepreneurs do not want to take one step backward. Unfortunately, it is sometimes necessary in order to survive a recession.

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Don't Let Your Business Lose Money for Too Long!

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Don't Let Your Business Lose Money for Too Long!


On the Cusp of a Recession?

In December, the US unemployment rate rose to a two year high of 5.0%, the worst since 2005. That increase was also the largest one month increase since April of 1995. A scant 18,000 jobs were added to payrolls in December, per the US Department of Labor. 2007 was the worst year for US job creation since 2003. As we are on the cusp of a recession, you need to think seriously about how an economic event might affect your firm.

Recession Questions

How are your major customers faring?

Would they be able to weather a major economic downturn this year?

Would you?



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


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?