The prospect of a prolonged downturn should lead to the introduction of more severe contingency plans for managing credit risk, freeing up cash, selling assets, and reassessing growth. But executives should also think through the opportunities that a downturn provides. .... A downturn can be a great opportunity to hire talent, to continue spending on long-term strategic initiatives, and to target acquisitions.3 Companies that now enjoy strong balance sheets have a good position to take advantage of current credit market conditions and reap outsized value for shareholders.
...Executives must therefore understand how to make costs more variable, and CFOs need to understand how to get their balance sheets ready to do so. The desirable moves include shaping the investor base to generate support for ideas that might seem to go against conventional wisdom in a downturn and could require a reduction in dividends. Companies shouldn’t rule out investigating and approaching potential financial partners, such as private-equity players or sovereign wealth funds, whose resources could help their allies to make the most of a slump.
Tuesday, April 1, 2008
How to prepare for a slump
The financial and housing sectors have already begun to slow down. What should your company do if the slowdown spreads to the rest of the economy? Here is the answer from McKinsey: