Thoughts on ways to improve the management of professional services firms

Friday, October 17, 2008

Economics of professional services - surviving recession 3: don't freeze all new spending

This post continues my discussion on the best ways to survive recession, drawing from the mistakes we made in responding to the last major Australian downturn in professional services. Those interested can find the entry point for the whole series at the end of the post.

One of the first standard reactions to downturn is to place a freeze on all new spending.

We did this as the 1990 recession bit. Fees dropped by two thirds during the March Quarter. We were bleeding cash. We put a freeze on all new discretionary spending to give us time to respond. This proved to be a bad error.

The problem with this type of blanket freeze is that its stops all development activities in their tracks. It also increases the difficulties faced by existing activities in responding to changing market conditions. Both act to worsen the situation.

You may need to tighten spending controls sharply, but you have to ensure that cash continues to be available to support your recession responses.

Return to the entry point in the series.

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