Note: ” Jim Gleeson wrote this advice to a small business owner in May 2006. The article is quite prophetic and shows the benefit of experience”

Nobody has even mentioned the ‘R’ word yet and I am hopeful that we are at least a year away from a recession, but this is the time to prepare.

Currently we have a resources boom, expanding exports to China, Europe is humming, the share market is breaking records and credit is easy.

So why talk of a recession?    Because:

• We have had 14 years of growth (when ten is the normal cycle)

• Interest rates have started to rise in China to curb demand

• Oil prices are really starting to bite and everybody is talking about the cost of

fuel.

Historically we had a very similar cost scenario in the 1973-74, 1982-83 & 1990-91 recessions.  In the 1970’s the mining boom was in full flight, Japan was buying commodities like they were going out of style, silly prices were being paid for assets, banks were throwing money at clients and the stock market was going ballistic.

Then the oil price quadrupled.   Nothing changed for a while and then in the space of a week, Japan completely closed its door to imports, the share market crashed, currency crisis were rampant and businesses went to the wall in droves, driving up unemployment.

In 1982-83 we were travelling along without a care in the world when all of a sudden there was another financial crisis. This time it was wages costs rather than the price of oil which was the straw that broke the camel’s back, but break it it did. Again businesses went to the wall as forward orders were cancelled and unemployment skyrocketed.

Another cost scenario was experiences in 1990-1991 except that it was Paul Keating forcing interest rates up to a ridiculous 17% for the cash rate. The market struggled on under the increasing cost burden even increasing pace until there was a major recession which “we had to have”.

Westpac almost went broke, several finance houses closed their doors and real estate dropped 40% in price. Again there were currency dramas and unemployment was dramatically increased.

The good news is that some businesses do extremely well in a recession environment.   Liquidators spring to mind but there are many others which can offer an efficient cost effective service.

I think the next recession will really bring the internet to the fore.   Businesses positioning  themselves to provide marketing and support services will be ahead of the trend.

Lately, I have heard the phrase mentioned that “it is different this time.”  When I hear that phrase it is time to panic. We keep repeating the same mistakes over and over again because human nature never changes..

NOW is the time to prepare.