Situation: A CEO is planning for 2015-16. While the economy seems to be picking up, there are clouds on the horizon. Do you believe the positive indicators? How do business prospects look for 2015-16?
Advice from the CEOs:
Company A: Based on our pipeline we should be recruiting heavily. However we are being conservative and are only adding personnel selectively.
Company B: We expect 2015 to be modestly better than the last few years. Engineering saw a turnaround this summer; however we need to see signs that this early economic cycle work spreads more broadly to the rest of the economy.
Company C: Some of our development work looks like a spike due to delayed projects. This may not be sustainable.
Company D: Weakness in Europe and the recent announcement that Japan has entered another recession give us caution about international prospects.
Increasing numbers of Baby-Boomers are retiring. However, some statistics suggest that 60% of retired boomers will be living on Social Security, meaning that they will struggle to make ends meet. This could create a negative shift in consumer spending.
The current stock market rally is based on the higher profitability of large public companies. This has come about as a result of two factors: recessionary cutbacks and easy money from the Federal Reserve. What we may be seeing is a Fed–funded bubble. There is a question of its sustainability.
Implications for business:
For companies doing business internationally – the lower dollar helps.
Cautious additions to employment/investment.
Need to deal with inflation if the recovery accelerates.
If and when the recovery accelerates, employee retention may become a challenge.
Situation: A company had several huge orders last year but ended the year with a low backlog. Sales forecasts are rosy, but acceptance of proposals and initiation of work is hard to predict because the company’s products are just a piece of much larger projects with variable timelines. How do you plan spending in this environment – conservatively to backlog or more aggressively to the sales forecast?
Advice from the CEOs:
It is important to understand the magnitude of difference between spending under the two scenarios. For example, if a conservative spending plan means major cuts to product lines or business compared to the more aggressive plan, then analysis and what if scenarios are more complex,
What are the company’s cash-flow and debt situations. If you are cash-flow positive with little debt, this increases flexibility. Another consideration is the company’s attitude on debt.
Be wary of the healthiness of an unused credit line. Companies have seen unused credit lines cut and accounts cleared when they have started using the lines after a long dormant period.
Exercising the credit line may increase flexibility.
Look at your approach to forecasting and spending. How far out do you forecast? How effective have past outgoing forecasts for several quarters been, and what confidence can do you have for the next quarter, the quarter after, and the quarter after that? If you are reasonably confident one quarter out, you can plan spending on this. If you can adjust spending relatively quickly this gives you more leeway.
Establish leading indicators to improve future forecasts.
What is your win/loss record on proposals, and a conservative estimate of what this ratio means for revenue?
Other examples include sales calls to new customers versus new key customers won, and similar sales metrics. These metrics can help to govern expectations based on sales forecasts.
If your sales team is not performing, look at changes to sales management. This may wake the team up and prompt them to go the extra mile for contacts and contracts.