Beaulieu at NFDA: You Don’t Have to Go Into Recession

John Wolz

Fastener production continues to increase while overall U.S. industrial production has been declining, economist Brian Beaulieu told the National Fastener Distributors Association.
Beaulieu, who works with the Institute for Trend Research, predicted the economy during the second half of 2008 will improve, but the recession of 2009 and 2010 will be severe.
“You don’t have to go into this recession,” Beaulieu declared. “Though survival is not mandatory,” he added.
The first economic response is to remain profitable, Beaulieu advised. “Stop hiring and let “B team” players go. You want to be debt free the next few years.”
Instead of accepting recession, seek to expand sales. “Do not accept slow growth,” he emphasized.
The economy won’t be changed by the 2008 U.S. elections, Beaulieu predicted. The winner will not make that “big a difference” in the economy.
It is a good time to sell a business and pay the capital gains because “your federal taxes are going up. Pay your taxes now.” Beaulieu urged.
“Save for the future. Do that for employees.”
Long term, Beaulieu is optimistic about the U.S. economy. Demo-graphics indicate population growth and thus increased demand. The 300 million population is expected to reach 400 million by 2050.
India, Indonesia and Australia also have “winning demographics,” but China, Europe and Japan have “negative demographics.”
Beaulieu’s recommendations during your company’s “Early B Growth Phase” include: “Accelerate training, check the process flow for possible bottlenecks”; continue to build inventory; increase prices; consider outside manufacturing sources if internal; find the answer to “what’s next?”; open distribution channels of your own or by outsourcing; use improved cash flow to improve corporate operations; use cash to create new competitive advantages; watch your debt-to-equity ratio and ROI; and maintain/pursue quality “don’t let complacency set in.”
Management objectives in the next “prosperity” phase of your business include: “Stay in stock on A items be careful with C items”; consider selling the business in a climate of maximum “goodwill”; penetrate new selected accounts; develop plans for lower activity in traditional, mature markets; freeze expansion plans unless related to “what’s next”; spin off undesirable operations; consider taking on subcontract work if the backside of the cycle looks recessionary; stay realistic – beware of linear budgets; begin missionary efforts into new markets; and communicate competitive advantages to maintain margins.
Beaulieu offered warnings for the “Late C” phase: Begin work force reductions; set budget reduction goals by department; avoid long-term purchase commitments late in the price cycle; concentrate on cash and balance sheet; reduce business to business advertising and inventories; de-emphasize commodity/services in anticipation of diminishing margins; weed out inferior products (“lose the losers”); encourage distributors to decrease inventory; identify and overcome any competitive disadvantages, avoid management team fostering denial; cross-train key people; watch accounts receivable aging; increase the requirements for justification of capital expenditures; evaluate vendors for strength (don’t get caught honoring their warranties with no one to accept returned goods); manage the backlog through pricing and delivery try to fill the funnel. \ �2008 FastenerNews.com