What Companies Should Do In The Next Banking Crisis
November 11, 2015 Leave a comment
In 2008 the world economy experienced its most treacherous crisis since the Great Depression of the 1930s, resulting in businesses going into a tailspin. In order to recover, companies were forced to scramble for support to generate new business and for capital expenditures. This also led to lenders cutting back dramatically. In addition to stock markets dropping worldwide (and threatening the collapse of a number of large financial institutions), the housing market suffered significantly, which caused foreclosures, evictions, and unemployment.
Many believe that there will be a financial crisis within the next few years, including Chris Flowers, a US private equity investor specializing in financial services.
What could companies do differently in the next inevitable bank crisis to avoid a major downturn?
Be extremely cautious
Even for companies that have not yet been affected by the crisis, the economy ultimately have an impact. The crisis will eventually affect just about every business in the country, as the forecast of money in the short and medium term will be vital. Income and expenses should not be neglected. Instead, closely monitoring market developments and sales should be a top priority.
According to Harvard Business School Assistant Professor Claudia Steinwender, who has been involved with the policy response to the crisis in Spain, businesses should cut down on investments that have longer-horizon payoffs and favor shorter-term investments. “When you hit a crisis, cut back on what you can but not on what you need,” Steinwender advises.
Have alternative options
Not all companies are created equal. Companies with alternative financing resources (for example, multinational firms with access to foreign capital) can recover more quickly than companies dependent on local financing. Looking for more diversification in terms of financing sources rather than depending heavily on the local economy is highly recommended for better positioning to weather the next crisis.
Don’t neglect communication
In times of a crisis it’s especially important to properly manage communications with those surrounding you. This includes employees, management, customers, suppliers, and stakeholders. Silence is perceived as an indiscriminate release of information. Instead, businesses should manage both internal and external communication, making sure all parties are informed of developments that affect the organization (in addition to the processes that are being executed in relation to them).