With inflation and interest rates up and commercial real estate activity slowing, business owners find themselves in a situation where it’s not always easy to know how to plan for the future. As an entrepreneur who has weathered more than one economic downturn, I’ve learned from past experience what to do and, more importantly, what not to do.
What To Do
Focus on what you have control over.
Too often, I’ve seen business owners try to boost sales activity by taking desperate measures like slashing prices, changing marketing tactics and doing anything and everything to try to influence demand. However, all that time and effort is often wasted when the demand simply is what it is.
One thing we do have control over is the expense side of the business. In times like these, it’s imperative to look to the future and extend our burn rate. If there were ever a time to trim the fat, it’s now. I advise looking at budgets and preparing for 1-2 years of a slowdown in activity. There are always efficiencies, and when sales are slow, this gives you time to do a thorough analysis of what is worth the expense and what isn’t.
Draw a line in the sand.
Meet with your executive team and determine at what point changes will need to be made. For example, when revenue drops to a certain point, plan ahead for that moment, and have a strategy for where expenses need to be trimmed. It may mean reducing locations, ditching the nice-to-haves and focusing on the need-to-haves or—worst case scenario—trimming salaries or staff. During the pandemic, our company temporarily reduced salaries for staff, which we later paid back once multifamily real estate came roaring back.
Make the best of it.
Nothing exciting will be happening for a while, so make the best of it. Travel. Spend time with friends and family. In my line of work, multifamily brokerage, we’ve become accustomed to the cyclical nature of the business. When we get a break from the hamster wheel, I’ve learned to truly savor the pleasures in life.
What You Shouldn’t Do
Adopt a sense of false optimism.
I’m an optimist by nature, but it’s always safer to plan for more layoffs and belt-tightening. There’s a difference between being optimistic and kidding ourselves by thinking things are stabilized when they aren’t.
Think you can control income.
As someone who likes to be in control of my destiny, this is a tough one. But as much as we like to think we can boost income by taking action, a recession will often dictate otherwise.
Wait to make a plan.
Now is the time to take action and plan for what’s coming. A year into a high-interest rate environment, it is clear to me we will start seeing large layoffs of companies in all industries across the board. Now is the time to trim the fat. Recovery doesn’t happen overnight. I would rather make adjustments early and plan ahead than wish I had done it sooner.
Plan only for the short term.
In my business, we are looking 90 days to 6 months out. We’re going into an economy where the dollar buys less, and costs are higher. Since you can’t fix your way out of it, it’s imperative to control the expense side now and into the future.
Maintain the status quo.
It may be time to take a new approach and look to new markets. In commercial real estate investing, location matters. There are still opportunities for deals in some markets where sellers may be willing to forgo profits to take prices they wouldn’t have another time because they will still make money—just not as much as before.
In conclusion, my advice is to prioritize planning over panic. In a twist on the old adage, just remember: What goes down must come up. If you keep your eyes on the horizon and put yourself in a good position during the downturn, you will emerge ready to ride the wave that is sure to come. I look forward to seeing you on the other side.