Prepare for Down Financial Cycle

Both Michael and I started our careers as bankers. Over the years, we lived through a number of cycles, both in the U.S. and overseas. We were often frustrated by the fact that, while our institutions taught us to be very smart about our analysis of our clients’ businesses, those same institutions had a blind spot about their own operations. Financial institutions as a whole are not managed as the cyclical businesses that they are. They generally go for the last bit of the up cycle which worsens the fall when the down cycle inevitably comes. That approach often leaves their clients holding the bag.

In the past few months, we have seen the tightening of the financial markets. M&A markets have slowed. Private equity deals are getting more conservative. Banks are tightening credit standards. And some banks have started calling loans that they were happy to have six or twelve months ago. Many financial players have overplayed their hands, and the pain of correction will be felt by many of their clients.

Whether or not you have trouble with your financial partners, this is a time to tread more carefully. Try to understand if your current deal is normal for your financial partner or “outside the box.” If you are too far outside that box, there is a good chance that something will happen that will cause your partner to get uncomfortable. If that does happen, you’ll need to move into an even more proactive mode.

Read Strategic Action for some ideas on how to manage through a troubled relationship with a financial partner.

-Mary Adams  2007