Going Down?

Whether it's a downturn, a recession or an economic dip, business owners need contingency planning. Zandi urges entrepreneurs to:

• Be cautious about making expansion and hiring plans.

• Do what you can to secure financing now.

• Make sure your credit lines are in place, or expand your credit lines; negotiate the best terms possible in case revenues weaken substantially.

• Set up a plan to reduce your cost structure. It may become important to reduce overhead and costs as quickly as possible.

• Diversify your revenue sources--particularly away from industries such as manufacturing, agriculture, financial services, energy and other sectors sensitive to weakening economies.

• Discuss plans with your employees--let them know if you intend to reduce bonuses or hours.

To gauge whether the U.S. economy is either in or about to slip into a recession, Zandi suggests monitoring several indicators including: consumer confidence, the job market and unemployment claims. So what's the bottom line? Zandi puts the probability of a 1999 downturn at 25 percent.

"Confidence should be supported by the economy's balance sheet: Corporate balance sheets are pristine; financial intermediaries are flush with capital; and household debt burdens are coming down due to dropping interest rates and less aggressive borrowing," Zandi says. "It would be unprecedented for confidence to fall to recession levels with these kinds of conditions."

This article was originally published in the February 1999 print edition of Entrepreneur with the headline: Going Down?.