There was a lot of press in late February when the Obama administration announced stress test of the largest banks in the TARP program, to see if they were worthy of additional assistance. Today the press talk is about how much of the results of those tests will be made public, enabling the public to see which banks the government considers weak or strong. The key issue, of course, is the fate of those considered weak, once that information is known. But here’s a thought for you to consider: What if your company were subjected by your board of directors or your lenders to the same kind of stress test? How would the company fare if it had to operate in a market that was itself under deep stress?
Take the stress factors for the banks and adapt them to your business; it might look something like this:
|
Bank stress test factor |
Your company stress test factor |
|
The economy contracts by 3.3% in 2009 and stays that way through 2010. There will be less money moving around and less opportunity for buyers and sellers of just about everything, and less demand for loans from otherwise worthy customers. |
Your revenues will drop 3.3% or more this year and stay flat for another year after that, while your fixed cost structure will stay, well, fixed. |
|
Housing prices will fall another 22% in 2009. This will certainly result in increased delinquencies and foreclosures. Already there are signs that foreclosures will rise dramatically very soon. |
Your customers’ balance sheets will contract by 22% from where they are today by the end of the year, beginning almost immediately. That means operating losses they will incur this year will wipe out much of their net worth. |
|
Unemployment will rise to 8.9% this year and to 10.3% in 2010. This will hasten loan defaults, including credit cards and car loans, in addition to mortgage payments. |
8.9% of your business customers will go out of business this year, or that same number of your consumer customers will have zero income before year end. That number will grow to 10.3% in 2010. |
If you have a strategic plan in place, you know that this will impact your planning assumptions. Ask yourself:
· How much impact will it have on you?
· What could you do about it?
· How long do you think it will impact you?
· Do you have credit lines in place to support you through this period?
· Are your reserves sufficient so that your existence is not challenged?
· If you had to raise more money quickly, where would you go and what would be your story?
If you don’t have a strategic plan in place, all those questions become even more critical, and your ability to answer them effectively and position yourself for this year and next becomes even more at risk.
Now what?
As always, I welcome your comments.
