In his CBS Sunday Morning commentary on Nov. 3, Joe Ricketts, founder and former CEO/Chairman of the financial services firm Ameritrade AMTD, +1.07% , said: “Are we headed into a recession? You can’t pick up a newspaper without seeing that question. Well, I’ve been involved in the financial market since the Stone Age, and while I don’t have a crystal ball, I can tell you with 100% certainty a recession is coming. Maybe not today or tomorrow, but it’s coming; economies go through recessions periodically.”
Ricketts is right. And if you’re a small-business owner, this is the time to start planning for the next recession — whenever it arrives.
That’s the theme of the smart, new book, “Rock the Recession: How Successful Leaders Prepare for, Thrive During, and Create Wealth After Downturns.” I recently interviewed one of its co-authors, Jonathan Slain, to hear him explain how to do it. I was especially interested in the “thrive” part, since that’s not a word people often use describing recessions.
As it turns out, Slain didn’t thrive during the last recession, when he owned a the Fitness Together personal-training studio franchise; but he made it through, with lots of help from his mother-in-law, as you’ll soon see. His co-author Paul Belair, however, not only thrived, he made a bundle. Belair invested $1 million in the Roth specialty contracting business before the downturn and sold it for $70 million after the recession ended. Slain and Belair now run the business advisory site aptly named Recession.com.
How entrepreneurs can ‘rock’ the next recession
Here’s my interview with Slain, currently a Cleveland-based business consultant speaker and author, about how entrepreneurs can “rock” the next recession:
Next Avenue: You say this is the time for small-business owners to prepare for the next recession, rather than waiting for the recession itself. Why?
Jonathan Slain: If you have a plan for the recession, it can be a real opportunity; you can pounce. That’s the idea.
The old saw is that in a recession, you should just hunker down and survive it. But what if you use the recession as an opportunity for leverage you wouldn’t normally have access to?
I’m talking about acquiring assets in a recession when banks will foreclose on your competitors and sell their assets for pennies on the dollar. Unless you have relationships with banks, and you’re one of their first calls, the cheap assets will be sold to someone else.
In your experience, do entrepreneurs take steps before recessions to be ready when the recessions hit?
No. Entrepreneurs are so busy producing and selling, there’s not a lot of time to think about how to do things better.
You write that you survived the Great Recession by borrowing a quarter of a million dollars from your mother-in-law. Can you tell me about that?
I owned five personal training studios in Cleveland through a franchise. The worst thing you can own in a recession is a personal training franchise. No one wants to buy one in a recession. It’s a luxury item and the optics of it are challenging. You don’t want your neighbor to see you’re paying a personal trainer while they’re having a hard time.
In a recession, people shift to low-cost gym memberships and small group training. If I had thought that through, I would have had a small group program ready to go and marketed it as a recession-buster to work out your recession stress. But I didn’t.
So I borrowed $250,000 from my mother-in-law. And even worse, not all at once. Every two weeks, I’d ask for another twenty thousand dollars for payroll. Imagine making 12 phone calls begging your mother-in-law. I paid her back.
OK, let’s get to the heart of the advice in your book. Here’s a basic question: What is a recession plan?
It’s a four-step process. The steps are like four gears in a gear: The gears are: Assess, Tune, Race, and Accelerate.
With Assess, you need to benchmark where you’re at. You can do that on our site, Recession.com, where there’s a free, 20-question Recession Readiness Assessment Test. In five to 10 minutes you can score your readiness, from zero to 100.
With Tune, you tune up your business and your personal life. What is your personal balance sheet and your business balance sheet? To look forward to a recession, you want a disproportionate amount of cash on hand so you can buy things on the cheap. Do you have a line of credit available, either through home equity or a business line of credit if you’ll want to use debt to finance purchases?
This is a perfect time to go to the bank and get your personal guarantees renegotiated. When economic trends are good, banks are willing to negotiate and cap your exposure. You can’t do that when there’s a recession.
Third gear is Race. It’s about tightening everything up to make sure you’re race-ready. That means getting your productivity right. If you’re making less on a product than you think you should, figure out why. In a recession, there’s no room for margin of error.
Fourth gear is my favorite: Accelerate. It’s hard to hire good people now that unemployment is at record lows. But in a recession, a lot of people will be on the market. I have a shopping list now of people I will want to buy — hire — in the recession, who are not interested now.
And what about something you call The Emergency Brake?
The traditional recession plan is to cut overhead expenses to survive; that’s the emergency brake, if all the stuff I’ve talked about isn’t working and you’re just barely keeping your head above water. With your emergency brake, you’ll know which expenses and which people to cut when you need to in order to stay profitable.
You want to have an emergency brake created in the cold, rational light of day and hope you will never have to use it. Otherwise, then you’ll have to grovel and call your mother-in-law. If I had one, I don’t think I would’ve borrowed the $250,000. I would’ve made cuts more quickly and dug myself out of a hole more expeditiously.
Some people in their 50s and 60s become consultants. Which types of consulting businesses are more vulnerable in a recession?
If you consult for hotels and cruise ships, you’re not in a very good spot. Those industries will get hammered in a recession. So, could you reposition yourself to consult with industries that will hold even or bump up in a recession, like grocery stores or hospitals? They’ll still do OK. People will need to eat and they will need health care.
Can you tell me more about how small-business owners can capitalize on opportunities in a recession?
One way is buying assets. In the last recession, a lot of gym businesses went out of business. I had made it known to credit officers at banks I worked with that I’d want to buy gym equipment from them. They called me three times with equipment from gym businesses in Florida, Kansas and New York.
In one case, I offered a thousand dollars for equipment they wanted to sell for something in the five figures. But they called me back an hour later and said if I would overnight a cashier’s check for a thousand dollars, they would take it. I learned that banks don’t want to own gym equipment. They have to store it. It’s heavy. And they don’t have the facilities for it. If they can sell it for anything, they generally will.
And what do you mean by having a recession acquisition plan?
If you’re large enough, you could be acquiring other companies during a recession. So, now is the time to have a list of them and network with them.
But don’t do it purely opportunistically. If you remain friendly with your competitors now, and they later have a hard time, they’ll say: ‘He’s a good guy. He’s been a straight shooter with me. He’s probably got some cash.” And then there’ll be an opportunity to do something with them.
And that’s true for acquiring employees too?
Yes. The same is true with potential employees. Players are probably working somewhere else now and happy and not posting ads on Indeed looking for work. Touch base with them monthly or quarterly and let them know all the cool stuff you’re doing. So, when the recession does hit, if they’ve lost their job, you want to be their first call.
Whether a recession comes because of an economic downturn or it’s caused by President Trump and tariffs with China or a ‘black swan’ event with geopolitics [that’s an unpredictable or unforeseen event, often with extreme consequences], we can’t forecast. Or it could be a recession just in your industry due to a regulatory change. Whatever comes, you want to have a recession plan.
Richard Eisenberg is the Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and Managing Editor for the site. He is the author of How to Avoid a Mid-Life Financial Crisis and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS Moneywatch. Follow him on Twitter.
This article is reprinted by permission from NextAvenue.org, © 2019 Twin Cities Public Television, Inc. All rights reserved.