The business climate is getting gloomier by the day. Expansion plans for most companies have been shelved as credit is getting harder to come by. The sudden frost in the credit markets though of grave concern, it is not what most companies are getting worried about. Companies are getting jittery about the climbing cost of doing business. As demand for products slows down, the spread between the net profits and the opportunity costs is shrinking. Companies loose value when they are unable to grow revenues and are unable to improve their profitability. What are companies to do in recession?

The answer to that question will depend on the industry you are in. However, in most cases, it is simply to continue improving your return on invested capital (ROIC) and gear for organic growth so that your are ready when the demand picks up again. There are several steps companies can take to improve their performance.

1) Get cash wise : Cash is king and the companies with strong cash flows and decent cash reserves will be in a very strong position to weather the downturn. This period can bring lucrative M&A options when a competing or supplementary business may be in need of a bailout. Focusing on cash flow will also identify all the major cash-drains in the company. Assess all major projects that are underway or in the pipeline for approval for their value in contributing to organic growth. Shorten the cash-to-cash cycle by working with your customers and suppliers.

2) Innovation : In the frenzy to conserve cash, do not stifle innovation. Make sure your R&D dollars are spent on programs to develop or extend products or services that your customers will appreciate. Support the effort to innovate because that is the most important factor for organic growth. Facilitate innovation by providing a organizational culture that eschews silos and promotes organization wide collaboration.

3) Supply Chain optimization : Ensure that your material and information flow is smooth and snag free. Having demand for you product is no good if you are not able to fulfill that demand. Keep a close eye on cost because that will ultimately make a difference in your cash flow.

4 ) Customer relationships : Know your customer. Be it your website, price structure or delivery performance, customers reward companies that are consistent and easy to transact with. As your customers evolve with their operating environment, so should your product offerings. This especially true in a downturn. Understanding what can help your customers in the current business environment can be the differentiator that enables a successful business to surge ahead of its competition.

5) Stock up on talent : People are the greatest asset for any business. Having the right people is key to the success of a business. Unfortunately the best people often move on if a company does not offer enough of a challenge or appreciation. A downturn is a ideal time to scout for talented people because a fair number of them loose their jobs due to market pressures. Take the time to evaluate your staff and supplement the team with the right people in order to support your growth.

All of points discussed above are things that most companies should be doing in their normal course of business. They simply take on added significance in a downturn.