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Boom, bust and recovery

5 March 2010 No Comment

Boom and bust. Despite the wishes of well intentioned but out-of-their-depth politicians, it will always be with us.

Share prices overreach themselves until the time when the reaction sets in, then the bears turn up and drive stock markets too low. It’s the same with property prices, energy costs and all commodities.

A similar cycle affects many businesses.

The sensible reaction when the the current downturn hit was for businesses to cut costs – recruitment & training put on hold, perhaps some thinning of the workforce, advertising and marketing initiatives cut, cash conserved at all costs.

The excess dip in the stock markets in March 2009 has now corrected itself and anyone that had the money and courage to invest in the early part of last year will have seen a huge return on their cash. And all businesses should be planning to take advantage of the upside, too.

There are pretty clear limits on the amount of cost-cutting that businesses can achieve, but there is no limit on the gains they can make in sales – until, I suppose, they have achieved 100 per cent market share. Even then they can broaden their product or service offering.

The economy has done little more than bottom out for now and the recovery may be a long slow climb, but so far in history every recession has ended and there comes a time – different for every business and of course dependent on cash available – but there does come a time to invest for the future. And if you haven’t prepared for that in your business yet, it’s probably time you did.

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