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Strategies for Economic Downturn: Positioning for Success and Generating Cash Flow During Trying Times

Mar 31, 2023

In this Solution Session, Robert Katz, Managing Director in the firm’s Financial Advisory Services Group, answers questions from business owners and delivers an overview of various strategies and tactics leaders can employ to protect their organizations, clients and employees when facing a recessionary economy.


Robert Katz:
Good afternoon everybody. Happy and healthy New Year, and I hope your new year is off to a good start. My name is Robert Katz. I'm a managing director in EisnerAmper Bankruptcy Restructuring and CashFlow Improvement Group. My background includes 29 years, 30 years of experience in the C-Suite as a Chief financial officer, A C E O, as president. I work with companies improving their operational performance and cash flow enhancements. I do it both in and out of bankruptcy, public and private companies, family owned businesses as well, multiple industries across the board. I also help companies refinance, find equity, find debt, all across aspects of the capital structure.

My thesis today will be talking about how do you go through a recession and maximize your opportunity, preserve your business, preserve your working capital, enhance the experience for you and your customers, and ultimately survive. I'll be answering a few questions I've heard from business leaders regarding preparing for the recession, how to deal with it and how to optimize the performance. Sometimes a recession brings tremendous opportunity, a chance to succeed when others are only seeing failure, a chance to reinvent yourself when others are going out of business.

So what's the best ways to be proactive in recession planning? Some of the better things are take a deep breath and set out a plan. Everything starts with a great plan. Execution sometimes changes day to day, sometimes hour to hour, but you're able to pivot and setting out with a plan and making tweaks along the way.

What is the process in being proactive? It's also being able to step back. One of the traits that seems to be lacking more and more is self-awareness, an executive and a team member's self awareness to know what's going on around them, to be able to pause and make changes real time.

What are some of the actionable solutions that can be leveraged during inflation? One of the most important things is qualitative. Take the opportunity to speak to your customers, know what's going on. If you have friendly competitors, talk to them as well. Those that will tell you the truth, not that their backlog is continuing to increase and life couldn't be better even though the world around them, including higher interest rates is falling apart.

Look at your vendors. Are your relationships good? Have you gotten more business from your customers? If not, ask why. Don't be afraid to ask why. I always say, and I'm also along the way, an adjunct professor at Temple University in Philadelphia, "The only way people know that there's a problem is if they ask." You don't know and you can't fix what you don't know. So don't be afraid to ask.

What are some of the actionable solutions? It's basic blocking and tackling to refocus on the opportunities and what's made you successful in the past.

Are you getting the best pricing? Are you taking advantage of discounts? Are you utilizing the 80/20 rule so you can minimize your excess inventory? Are 80% of your customers being accounted for from 20%? Are 80% of your sales coming from 20% of your customers? If so, you want to keep nurturing those customers. Same thing with your suppliers. Have you checked to make sure you're getting the best price? If not, again, you want to ask why. Who are they giving better priorities to?

And also, how do you manage people in these tough times? Before we clicked on, we were talking about how do you retain people? And again, knowing what's going on around you is critical. Do people like where they work? Do they like your company? Do they like how they've been treated? Because most of us have been treated poorly somewhere along the way, so we understand how to treat people because sometimes on how we weren't treated. Are you having constant communication with your team members or you hiding behind closed doors? I always say we're all smarter than we're given credit for. If you have closed door meetings, people can form their own opinions. Bring them in and tell them what's going on.

I serve as an executive, like I said, in troubled situations or those that are going through transition and generally speaking, my door is open and I answer everybody's questions. If I can't tell somebody something because it's confidential, I'll tell them that. And if nothing else, people have a tremendous perspective for when you treat them honestly and treat them fairly. If you think about it, uncertainty is one of the toughest things to deal with. Most people can deal with good news, they can deal with bad news, although they don't like it. It's the uncertainty of not knowing that really is unnerving to most everybody. And during a recession, those things are critically important. Being more comfortable helps people be more productive.

I was also saying, and I find this too that people are on edge. Inflation, even though 6-7% isn't bad relative to what some of us older folk are used to. It's 6 or 7% more than it's ever been in the last decade. So how do you do that when you're buying power is going down? And understanding how do you manage it and focus on it so you can keep prepared and keep being prosperous during tough times.

During the recession, people ask, where can I safely cut back and where are areas I should never cut back? One thing too that I always say to find money or raises for your stars. Salary increases for the appropriate group, for the right people are critical because your best people are those that are the largest flight risk. So you find a way to keep them.

Same thing with advertising and marketing. People say, should I spend it? Spend money on that. It's a discretionary item and sometimes I can't measure it. But one of the most important things is being in the market. Think about your conventions if you go there. If all of a sudden your firm doesn't show up or you don't show up, people are going to want to know what's happened. So it's important to find value for everything. And how do you define value? It's making sure for me, when people ask to spend money, that they can articulate what is it they need, why do they need it now, and what's the value I get for it as one of the corporate leaders? Or even at home, if somebody can't articulate the value that they or the company is receiving, then they don't really understand. And the first time you asked the question will be the last time because the next time people come to you with a request, they'll be prepared to address it.

And that goes to focusing on the cash flows. People become smarter and better managers when they have limits. Think about a credit card to solve your cash flow problems. If you have available credit, it's easy. You write a check and you spend money to solve the issue personally or professionally. But once you've hit the limit, once you've tapped out your credit limit and you're tapped out, you have to become smarter. You can't just write a check to solve it or send a Venmo or send a wire. You have to become a better manager and understanding what's going on, that the ultimate goal as simple as it may sound, is to have more money at the end of each month in each year than when you started. And it's critical, which this probably goes without saying, but again, you can be profitable and not have cash because your cash could be tied up in your receivables, your inventory.

If you think about the inventory, it's making sure you have proper turnover, that you have proper controls, that you don't have bloated inventory. A lot of retailers are suffering from mismatched inventory and they can't get the inventory. Or some now have it, but the demand is down. So again, focusing on the core, the cliche about blocking and tackling and making sure your focus on your key performance indicators. Again, has your inventory been moving? Is your turnover good? Are you collecting your receivables? Are you taking advantage of payables and the terminology that goes with that? Are you taking advantage of discounts both from customers and suppliers?

So in a recession there are a few things more important than managing your cash flow and understanding what's going on, where your money's going and what's the value you're creating. What's your plan? If you have a lending relationship, the best time to ask for more money is when you don't need it. When was the last time you met with your lender? When was the last time you had a discussion about projections? Are they providing you enough liquidity? Do you have a cushion? Everything you read from a personal perspective suggests that most Americans have significantly less than six months safety cash on hand, most even have less than three months. Think about that from your perspective, from your personal life and your business. Do you have a safety net in case God forbid you have a problem? And if you don't, you're not alone. But what's the best place to try and find it, to develop it, to put a plan together?

I always say this, whether it's students or clients, "If you borrow money and you don't pay it back, people are really, really going to be annoyed." And again, having the plan. Again, hard times fall on everybody. So again, don't be afraid to go to somebody to ask for a variance to terms. The communication is of significant importance because people are going to find out so that if you can tell them and think about it, one of the things that's really important as we go into a recession, hopefully not a long one, is put yourself in somebody else's shoes.

And think about it this way, because I use this example. If you have a vendor and you're past due and there's a staff person handling your call in your relationship, if you tell them the check is in the mail and it's not, ultimately they may ship you the product this time, but once they get the backlash from their boss because you told them something and didn't deliver, they'll never believe you again. Trust is earned, not granted. So communicate with people. Again, people can deal with bad news even though they don't like it. We all like good news, but it smooths out the uncertainty.

When you're decision making, who should be involved? And I have this with a new client. I always like people to be on a transition team or special projects that are hungry that they want to learn and they're interested in being a change agent. What part of the company they're in doesn't matter. It's the traits of being hungry, interested in making a difference and being a part of the solution. They're the people that I want. It could be in administration, could be in finance, could be in facilities. We generally have one representative of the board, somebody that's a very good listener and I'll touch on that in a moment. And also, that way there's a representative of the board so that people on the team know that the reporting lines take it very, very seriously.

It's also important to have people that listen. We have two ears and one mouth because we should be listening twice as much as we speak. And that's a trait, again, like self-awareness that's at times lost in today's environment. How many times are you talking to somebody and they're already giving you the answer before you finish the question or finish your comment? If they're already answering you, then they're not listening. And you can learn significantly more from listening than you do from talking.

What do rising interest rates mean to customers? On the good side, your savings deposit rates are up, but they also say, what pushback can I expect from clients? Again, hopefully you're managing it as you go, but the way I look at it, if you think about your business and if you were paying prime plus three, so you were paying 3 or 4% or 5 and now you're paying 8 or 9%, if that 3 or 4% difference or 5% even is a difference between you making money and not, you're significantly too close to the edge to begin with and you need to redo things.

One of the clients I'm involved with that is a significantly profitable and well run company that when I interacted or started with them, they just had too much inventory. They went to weekly meetings so that they could tighten the ship, they could reduce their waste, their manufacturer, reduce their overtime so that any issue that came up, it would be addressed real time within a week rather than waiting for a month. And if you think about this, if you're having meetings and you're overtime is, I'm going to say significantly more than it's been in the past, nobody wants to keep coming back to the same meeting and saying, "My overtime continues to be too much."

Again, it keeps you focused, it keeps the self-awareness involved. So over the year, they improved their net income. They have a May fiscal. They improved it from a $2 million profit to a $9 million profit. Commodity prices changed a bit, but it became better controls, better focus. And having a variety of people on your management team or in that small circle brings a different perspective.

And every industry's facing it, very few are immune. If you read recently, Goldman Sachs, one of the most profitable investment banks ever, laid off 3,000 people. So it's open for everybody and how you manage the basics sets the foundation and the tone not only for your team but your business as well. And also again, in terms of finding rewards for the stars, days off or taking advantage of this past year where the holidays were on the weekend. By giving people an extra day off. So for instance, the official holiday was on Monday, but giving somebody that extra Friday off beforehand again makes a world a difference. Because more and more people and companies are doing what they can to try and retain is as best they can.

And one of the things too is you want to find out what's really important. Too many companies offer ancillary things that nobody really cares about. So make sure what you're offering is important. Again, get the input of everybody because otherwise it becomes almost like a disincentive. You're giving somebody something that they really have no interest in. You want to make something worthwhile and valuable. Again, what's the value that you're giving? What's the value that you're getting?

During the recession, what are some of the financial strategies that can best be used or taken advantage of in uncertainty or a turbulent market? To me, again, and you've heard it from me in my short time here, it's about your cash flow and as somebody who never has enough of it, I work with companies in transition generally. Now and then I get profitable ones, and it makes a difference because again, it's planning and understanding the value. And something along that it's critical. And it seems trite, it seems like a cliche, but saying thank you and saying that you've done good work is critically important.

If you think about going to a restaurant, how many times do you complain the server's not doing well, the food is late, it's not quite right? Everybody's ready to complain. Very, very few take the two minutes to say thank you. Whenever I call a manager over, and if it's not right, my family would tell you I'm one of the first to say it's not right. But I also say thank you for great service. And when I say that at a restaurant or somewhere, I have to let the server know or the customer service representative that I'm calling over to give them a compliment because the manager says people don't do that.

Charles Barkley, who was a hall of fame basketball player, he's now a well-respected announcer, and he had some of his own issues. He was raised by his grandmother and she said to him, she said, "Charles, when you're going up that elevator of success, make sure you stop along the floors on all the floors and say thank you to those people who helped you along the way." I read that many, many years ago, but I've never forgotten. Both at work and at home. Saying thank you or finding just something, whether it's a gift card, makes a difference. Brightening people's day. So something very simple. You can go to Starbucks online and McDonald's or Dunking Donuts or wherever your coffee dejour is. You can send somebody a gift card. Even I can set it up to do that. For $5 or $6. Little things like that. So somebody opens it, they've thought of you, you get a big smile and they drop you a note. So it doesn't have to be expensive, it doesn't have to be extravagant. You just show people you've thought of them.

When times are tough, it's really important to do that. Again, I help companies make payroll, generate cash, improve in performance. So I understand a lot of times when business life isn't going particularly well. People will come up way bigger than you ever thought and way smaller than you ever thought, and most people will never, ever forget both. So again, it's finding the value. It's working with core group, it's putting things in perspective, having some self-awareness and listening. Things that are very at the core of good business sense.

And again, one of the things I have talked about but it is worth repeating is when was the last time you met with your banker or your lender? And if it's been a while, schedule a call, schedule a meeting. Let them know what's going on, if it's good or not good, especially given that we're in earning season. And most companies, if you're on a calendar year, you have to deliver your financials usually within 90 to 120 days of year end. So if you didn't have a great year or if you did, let them know early. Part of managing is managing up the food chain, managing down the food chain. So if you let them know, whoever them is, it will put you in a better position along the way. Because again, it's keeping people informed. Rarely does anybody like surprises, unless the surprises are really, really good.

During a recession, what are some of the reasons it's so difficult to hire and retain talent? How can I account for these? We've talked about it in fact before the call. The flexibility of work and as we all want more money, and if you think about it, very few people if you ask them, think they're fairly compensated. So we all want more. But most times it really isn't about the money. Sometimes it is. Look, our retention rate in our group is very, very good. But on occasion we've lost somebody where the money was just so great that the other company was in desperation. But generally, a lot of times it's not. It's about finding, as somebody said, the work life balance. Some more qualitative things go a long, long way.

But again, ask people. It's what I find is one of the things that I've worked on changing. Again, I'll go in as an interim executive, and if there are people that don't want to be at the company for whatever reason, I just ask them to tell me so I can make a proper transition. There's nothing worse than having somebody that doesn't want to be there, or if you're that person, you don't want to be there, and I'm okay with that. That way I can make a transition for them. I can make a transition for the company and everybody moves on in an organized way rather than somebody just giving notice and saying, "I'm giving you two weeks." So again, those are some of the ways, assuming that you don't have an unlimited supply of money to give out. It's what's going to make a difference so that when they come to work, and again, the cliche is that they say, overall, "I have more good days than bad. And I like coming here. I like the people. The work is interesting." And finding those kind of opportunities, again, that make a difference.

I don't view recessions a lot different than when times are good other than when times are good. Look, it's easier. It just is. You don't have to work as hard to generate revenue and sales, but to manage the company and manage for the future, whether it's in a recession or when it's good times, it's the cores that we've talked about today. What I encourage people, again, I've said this is if you're not sure, ask. Again, not to be trite, but don't be afraid to ask. I've read something significantly where people talk about your friends, your competitors, or your enemies, and they talk about making excuses. They say that your friends don't need them. Your competitors and enemies will never believe them. You want to get away from the finger pointing.

When I step in this situation, I generally accept wherever I am. How I got here isn't as important as to where we're going. And people have to be comfortable that those that are remaining are still there. Again, they're part of the solution. I say it this way too, you're all rowing in the same canoe, so we're all going down the river, up the river. We're all going to get there together. Again, it's trite, but when you have one finger pointing out, there are three pointing back. So it's those things to keep your focus on your cash, keep your focus on managing and understand what's going on around you, having some self-awareness, sharing in your success and saying thank you when time is good or time is not, it's more important.

So with that, have an excellent 2023. My name is Robert Katz and you can reach me at and I would be happy to give you, again, as my contribution to hopefully your future success is you can reach out to the team here and I will provide a free day of service for you. It'll be on me if I can help. And usually, again, I understand what it takes to provide value, so I'm hoping to some further engagement because again, it's the value proposition at its core that keeps us going. It has us moving forward. Thanks for your time.

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Robert D. Katz

Robert Katz CPA is a Managing Director of EisnerAmper Financial Advisory Services Group, and works with public and private companies, in and out of bankruptcy, to create and execute the strategy needed to restructure or improve operating performance.

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