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MANAGING IN AN UP-CYCLE 



William J. Martin 



N, 



ormally. as a banker, I am 

 called upon for help and advice in 

 rough business times. A more 

 important time to review and 

 address management decisions is 

 the period of an up-cycle. In the 

 times of tight cash flow, many 

 decisions are forced upon us by 

 the need to survive. In the period 

 of an up-cycle, management has 

 the ability to make discretionary 

 investments. These decisions may 

 adjust for past errors in capital 

 investment, allow for improved 

 efficiency, or allow for investment 

 in expansion or retirement. 

 To identify if your sector is in an 

 up-cycle, I will define an up-cycle 

 as: "a period when income ex- 

 ceeds expenses by at least 25% and 

 managers are faced with paying 

 income taxes." To manage success- 

 fully in an up-cycle, de-cisions 

 should coincide with an overall 

 business and family plan. 

 In the development of a plan, you 

 begin by identifying business and 

 personal goals. A statement of 

 goals will help provide a direction 

 for decisions. The development of 

 a business or strategic plan can be 

 done during any cycle. 



In this article 1 will address 

 those items that are especially 

 important for an up-cycle. These 

 concepts can be represented by 

 an important checkUst to main- 

 tain discipline in operating your 

 business. 



First, a general rule of solving 

 three "needs" for every "want" is 



In the times of tight cash 



flow, many decisions are 



forced upon us 



by the need to survive. 



In the period of an up-cycle, 



management has the ability 



to make discretioneuy 



investments. 



These decisions 



may adjust for past errors 



incapital investment, 



allow for improved efficiency, 



or allow for investment in 



expansion or retirement 



often suggested by our con- 

 sultants. A "need" is frequently an 

 item that you identified during 

 a down-cycle, but could not af- 

 ford. Now is the time to rank 

 these needs and put them into 

 action. Examples of needs are 

 replacing boilers and irrigation 

 systems, improving or replacing 

 greenhouses, etc. Then create a 

 wish list of "wants" that would 

 include items such as a new car, 

 an expansion greenhouse, or a 

 new computer system. We can 

 now follow the general rule of im- 

 plementing three needs for every 

 want. 



Secondly, do not compromise or 

 reduce your business standards. 

 Frequently during a down-cycle, 

 improvements in production and 

 labor efficiency are made. As 

 profits improve, 1 occasionally see 

 these high standards for product 

 quality and productivity drop; 

 when management standards drop, 

 so does employee delivery. 

 Thirdly, remember the "but-what- 

 ifs". Most business decisions 

 do not fail to achieve their goals if 

 the assumptions used in the 

 decision process remain constant. 

 (The reason most decisions fail is 

 that the assumptions on which 

 they're based have changed.) 

 Testing for the "but-what-ifs" is 

 done by adjusting some of 

 these assumptions. Some exam- 

 ples would be "but what iT the 

 price of oil changes 35 cents per 

 gallon, the new purchase can 

 only do 75% of what's advertised, 

 prices received drop by 15%, or 

 interest rates change by 3%. The 

 use of the "but-what-ifs" test a 

 decision for its sensitivity to 

 changes in the assumptions used 

 in making it. A solid decision can 

 take into account some of these 

 changes. 



F"ourthly, now is the time to be 

 sure the business is in balance. 

 To survive a down-cycle, some 

 corners were cut and improve- 

 ments delayed. Examples of items 

 out of balance might be inade- 

 quate fuel storage, worn-out de- 

 livery fleet, inadequate working 

 capital, inadequate labor to allow 



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