In the April 2007 QR, we talked about economic downturns having some benefits to healthy companies for finding people, equipment or real estate. Dr. David Seiders, our chief economist at NAHB Remodelers, felt at the time that things would be coming back around by now, but then the “sub-prime” mess hit and the likely recovery got pushed back to sometime in mid-2008. As a result, the next few months might be a good time to see “if” and “what” we might want to acquire.
Struggling companies are laying off qualified personnel and selling equipment and even property just to survive. If your operation is strong and has some cash, slow times can present some real opportunities. Don’t look at this as predatory; it is an opportunity. It is for times like this that you paid attention when times were good.
A decision on good real estate is the most straightforward. A good location, a new company office or shop with room to expand, if bought right, can be the start of a retirement asset in my “get rich slow scheme.” If the property needs some improvement, you do that at cost and it appraises at market value. If the seller is behind in payments, the current lender might be an interested party for new financing rather than taking the property back; there may be seller financing available. If you can purchase more space than you need and rent the extra for enough to pay the mortgage, before you know it, it’s paid for — it works, believe me.
Equipment shopping is the easiest — say you a see skid loader/trailer for sale. You rent a similar setup a couple of times a month, so it’s pretty easy to evaluate the need by what your current use/need is using rental rates, including damage waiver and tax. If your rental is enough to cover about two-thirds of the payments to own a new one it, then it’s probably a good deal. Go to work on the purchase price and make it better yet; waving cash in times like this makes a nice breeze. If you want to finance it, an 8 percent, five-year loan will cost you about $20 per month per $1,000 of loan.
A decision to add personnel is more involved because it requires a pretty good forecast of when you expect business to turn around. When we’re busy, we are very aware of the need for additional management; it’s also the time when we have the least amount of time to train and to make a “newbie” productive. When we assign someone to train them, we suffer a loss of productivity with the trainer while we’re creating it with the trainee. Six months is a good time span to use for how much training it will take to bring someone to full productivity and independent operation, so accurate timing is helpful in keeping double overhead to a minimum.
The psychological edge is with you by hiring when it’s slow. Jobs are harder to come by, opportunities are more appreciated, and the manager trainee will pitch in with executive “grunt” work cheerfully. Most CEOs are giving more “face time” to their businesses now, and that is a great atmosphere in which to create a potential superstar manager with your company. The training process can be more efficient because of more available time. The goal is to have Ned Newbie ready for the firing line when business fires up again.
We have all made a “yes” decision based on the thinking, “if I just get just one more job with the full-color ad, it will be worth it” or “the new Moto Q Global phone will save me enough time to make it pay.” There will be some good deals out there for you, if you’re in a position to take advantage of them. So think of what or whom you will need when it gets good again and do something about it now at a bargain, while you’re here...