Energy producers in Alberta are no strangers to volatile commodity prices. So with the price of oil plummeting recently, most have responded quickly by cutting their dividends and reducing their 2015 capital expenditures. This contraction will ripple through Alberta’s economy. First, oilfield service companies will experience slower activity as well as lower prices for their services. Then, the real estate market will soften, financial services will slow, businesses services will decline and household incomes will suffer leading to lower retail, restaurant and entertainment sales. The picture looks dismal…. Or does it?
As a financial consultant who assists entrepreneurs in maximizing the value of their businesses, I have found that it is often during these low periods when the value creation process occurs most. Companies rid themselves of non-core assets, refocus on their core competences and invest in innovation to make themselves more resistant to future economic downturns. Motivated by economic survival, companies can achieve amazing productivity and catapult to new heights.
Business restructuring, recapitalization or rationalization are all positive steps for companies. I have found that there is more owner-employee alignment during lean times, enabling organizations to rise quicker to the challenges they are facing and formulate more enduring solutions.
Scarcity of resources, whether human or capital, is an important necessity to ensure they are allocated to the most productive use. Often, during good times, companies can lose sight of this principle, waste resources or channel them to unproductive ventures. However, tough times reinforce this basic axiom leading to more rigorous decision-making and ultimately more prosperous times. For sure, Albertans will need to work hard during the downturn we are facing, but from my experience, economic downturns are not all bad. In fact, they are usually my busiest and most satisfying times.
Gene Vollendorf , President of Melrose Inc.
Provider of financial acumen to entrepreneurs.