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How to survive the recession.

How to survive the recession

The current recession has resulted in many real estate, construction and design firms having significantly smaller projects lists and staffs. This reduced base of business may prevent many firms from being able to handle new business when the economy rebounds. At the same time, many existing and potential clients will be concerned about offering new business to firms that have substantially diminished in size. The result is a classic Catch 22: a business that downsized in order to survive may now be too small to attract substantial new business.

Nevertheless, it is not too late to implement management initiatives that can help to ensure the survival of your business. Here are six strategies that will put your firm in the best possible position to survive the recession.

1. You must avoid taking on bad business under the mistaken impression that any business is better than no business.

Projects that cannot pay their way guarantee a trip to bankruptcy. You cannot pursue new business that can't begin to cover costs. If a new client can't produce a positive cash flow, don't accept that client.

2. Staying in business is more important than the size of today's staff.

Almost everyone is down to the bare essentials. Unless you operate in a "lean and mean" mode, you may find your firm in very rough waters. Keep your doors open at any cost even if you must pare down to a skeleton staff. If you are careful and creative in managing your resources, you have a good chance of being prosperous again when business rebounds.

3. Aggressively pursue monies due you.

Today's accounts receivable have no reality until they're collected. Receivables require a vigorous effort - you must be aggressive in collections.

4. Today, much of the best talent is out on the street looking for a new home.

In the past year, I met with dozens of individuals with wonderful credentials - all looking to relocate to new firms. The recession has forced many firms to release these talented individuals. If you don't aggressively go after them now, your competitors will. And when the recovery is underway, you'll wonder why your competition has terrifically talented people while you're looking for the experienced team to run your expanded operations.

5. Marketing is everything in a recession.

Smart firms continue with a strong marketing effort even in difficult times. But don't expect instant gratification. Marketing in tough times paves the way for future profits. It's the best way to keep your name in front of both clients and prospects.

The five strategies that I have outlined will energize your businesses and maintain morale. Maintaining the status quo is for those destined to be the dinosaurs of the 80s, not the dominant firms of the 90s. Now, you must begin to focus on a sixth strategy that may be timely and critical for any businesses.

6. Now is the time to solidify future business through mergers and acquisitions. Smart firms should consider mergers or acquisitions in order to reposition themselves for the vast amount of new, post-recession business to come. Clearly, many will be unable to muster the resources to survive the long term effects of this recession. But from the ashes of this economic downturn will rise a number of stronger, more dynamic firms.

The mergers and acquisitions that are critical to the real estate industry will help strengthen capital resources, improve cash flow and allow firms to acquire new talent on a basis that will be unavailable for the rest of the decade.

The benefits of mergers and acquisitions can be summarized as follows:

1. A successful merger allows businesses to adapt to the strong winds of economic fluctuation and achieve a better balance in their operations while improving the level of their work product.

2. A successful merger can complement an existing organization's client base, expand the available talent base and provide ready-made new markets.

3. A successful merger brings in experienced management with proven leadership skills. A successful merger has a dynamic all its own: one plus one can equal three.

A merger or acquisition must take economic sense for both parties. It will not only improve the potential for two businesses, but will create a new entity that is better, stronger and more competitive.

This is not just a numbers game or a question of profit ratios. Ensuring a broader marketplace, ensuring a stronger management team and seeing that the process results in a stronger entity is the conservative approach that you must employ. The key to success will be your ability to change with the times and change with the marketplace.

Barry B. LePatner, Esq. is senior partner of LePatner, Block, Pawa & Rivelis, Attorneys at Law, in New York City. The firm provides legal and business advisory services to the real estate, construction and design industries.
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Title Annotation:Review & Forecast Section IV
Author:LePatner, Barry B.
Publication:Real Estate Weekly
Date:Jan 29, 1992
Previous Article:Tax consequences of real estate investment.
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