The Smart Business And Profit Growth Strategy: Anticyclical Investment and Money Management

Most companies will reserve money from their profits in good years to survive times of recession where profits usually disappear or even turn into losses. Companies are forced to downsize and struggle through those years trying to survive. When the economy changes and things are getting better, profits are increasing, the company is growing, profits are immediately invested and new staff is being hired.

Usually in economic good periods most companies are investing (buying) and hiring staff. Which means everybody’s paying market prices for all investments and the competition for qualified staff is high, because most are already employed and many employers are headhunting.

On the other hand in times of recession some businesses might go bankrupt and their assets could be on auction, there is a high unemployment rate and a lot of businesses have trouble selling their products and services, because nobody is buying anything, holding on to their money out of fear during these times of recession.

This cycle is perfectly normal and usual for the majority of companies who are riding the flow of all market conditions as they are happening.

However we always have seen that bull economies and recessions are as certain as the changing of seasons, that’s also why companies usually hold reserves, so they are prepared for times of recession! As a business with a long term strategy we can use those changing seasons to maximize our profits and business growth; we can call it Anticyclical Investment & Money Management!

So we know that in times of bull economies:
– everything we buy (or invest) is at (higher) market prices
– the best and most qualified staff is hard to find or hire because of low unemployment and high competition between employers.

And we know that in times of recession:
– other businesses have difficulty selling their products and services, because nobody is buying or investing
– some companies might go bankrupt and their assets and stock could be on auction or some whole companies could be for sale at a bargain price.
– A lot of talent is now unemployed and searching for jobs. Employers that are hiring have plenty choice between candidates.

Anticyclical Investment & Money Management involves exploiting the benefit of both of these macro economical conditions and turn them into substantial business and profit growth. It basically means we will do the opposite of what most other businesses are doing in the given state of the economy.

During a bull economy:
We will minimize investments to only the most necessary (fixed) assets that immediately benefit profit growth and we will try to avoid replacement of any (written off) older assets yet. Save as much money as you can from the profits to grow the highest possible cash reserve during this bull economy period.

One issue that should be looked into is taxation: high profits during bull economy times that are not reinvested yet would mean the company needs to pay more taxes which would negatively affect our ability to generate high reserves. Try to use strategies to reduce book profit by applying higher depreciation on assets or compensate previous losses.
During a recession:
Massively and agressively increase investments (replacement as well as new investments in fixed assets). Most suppliers will be very willing to sell at larger discounts during recession because they usually have a hard time to sell anything. By investing against extra discounts the effect on the total business costs can be tremendous over many years. Other investments could be in further cost reduction and improvement of processes to make the company run more efficiently. Downsize the company only to a certain limited extend and keep the company at a stable size because constantly downsizing and upscaling the capacity also costs a lot of money in the long run. Only terminate non-profitable activities and make sure to lose the unproductive part of the work force.

The company could also invest in other great value companies that are for sale at undervalued prices due to economical difficulties, if a take over is adding value and creates synergy with the existing operations.

As soon as the unemployment figures have reached new highs and thus the competition between job seekers is high, but nobody’s hiring, a lot of talent will be available and can and should be attracted easily.

Recession is the best time to invest in fixed assets, business efficiency, stock or raw material at the lowest prices, as well as find and hire the best talent in the market, and doing so growing and preparing the business for the next bull period to reap the highest profits possible.

Make sure enough (long term) loans are already available to maximize the investment potential as well.

How to identify a recession?
Usually it will be very clear there is a recession on it’s way: depression in the stock market, high unemployment rates, higher number of bankrupcies and of course the news papers will be full of articles. If these signs appear, it is time to search for the great deals to be made for investments.

Individual analysis and risk assessment
Obviously every business should first of all analyze it’s own business model to see until what extend this strategy is applicable for it’s own specific company and specific market conditions. Also a risk assessment should be made to analyze the period of recession that can be overcome on the reserves if operations don’t generate enough profits but simultaneously investments have to be made anyway; money is running out of the company at double speed, so the cash supply should be enough to stay alive until the next bull cycle arrives. Most important is that money management, investment- and cashflow planning over a longer period become vital for the successful adaption of this strategy and the company as a whole; if it is managed well though, the benefits can be quite fulfilling!

Conclusion
Although this approach seems so logical and natural to apply for every company, most of the companies will not have the forsight of or discipline for long term business growth and most will just look at shorter term direct results and market conditions or in some cases, it is not for every company. So here lies a great opportunity for smart businesses with a long term vision to exploit this extra and profitable leverage in their business model!