How MarketBeat is Preparing for the Next Recession and How You Can Prepare Your Business Too

2008 was a bad year for a lot of different industries. The financial media space that MarketBeat operates in was probably the worst hit amongst a lot of different industries. Investors took out money out of the stock market in droves as The S&P 500 lost 50% of its value during the 18 month bear market that lasted between October 2007 and March 2009. Meaning that investors that aren't putting money in stocks anymore obviously don't have a need for financial newsletters or research software. And in kind of a one, two punch, people that were previously dependable advertisers cut back on their ad spend with brands like the Wall Street Journal and Barron's and Yahoo Finance and MarketBeat, a lot of the print based publications, print financial newsletters, they just didn't survive the recession because of the large fixed costs that they had and a declining revenue that they faced during the recession. MarketBeat, which was originally called American Consumer News, we incorporated at the height of the recession and we've really benefited from the 10 year bull market that followed the Great Recession. And we all know that bull markets don't last forever and the next recession is really a matter of when and not if. Obviously, trying to time a recession perfectly is kind of a fool's game, but many business owners that I interact with think recession is on the horizon, and they began preparing their companies and their financial portfolios in the event that a recession does come. A lot of people worry about tariffs, people worry about other things, worry about the election, worry about President Trump's impeachment, a lot of things to worry about Financially, I honestly don't know when the next recession will come, but I have been thinking about how could we prepare market beat for a recession given our industry's unique sensitivity to economic downturns and stock market declines. So I've got a few different ways that we as a company are preparing for a recession and maybe some ideas that can help you prepare your company for a recession as well. The first thing that we are doing is we are trying to reduce some of our fixed costs. So over the lifetime of our business, we've operated at about a 75% profit margin. But that number has really slipped in the last couple years due to more payroll. We have seven employees now, some speculative growth projects that maybe didn't turn out as we had hoped, and then just growing infrastructure costs as the size of our mailing list grows and the number of people on our website grew. So I went line by line through our corporate ledger. I looked at every expense that MarketBeat's paid over the last couple years. And I said, do we really need that? I also looked at the ROI of every advertisement placement that our companies pay for on a monthly basis, and we've kind of eliminated the bottom 20% of placements that just weren't paying off or maybe breaking even. So we're actually able to reduce our company's expenses by about $19,000 a month, or 9% of our company's operating expenses. And if you look at the blog post associated with this video, I lay out what some of those savings were. But I'm not going to go into each one in this video. So neither our customers or employees will even notice that we're not paying these expenses anymore. But I do think eliminating them will increase our company's financial resilience if there is a sudden decline in revenue. I think the fact that MarketBeat has some fat to trim at a current profit margin of about 65% shows there's probably some fat to cut in just about every business. The key to surviving a recession really is just outlast it by not running out of cash before things get better. So if you can cut your expenses kind of ahead of a decline of revenue, you'll have more profit that can be stockpiled into an operating reserve, and then you'll just be able to survive a recession that much better. The second thing that we are doing is growing our company's operating reserve. So historically, we just haven't kept a large operating reserve inside the business just because of the consistency of its revenue and our high profit margin. So right now we keep maybe two months of expenses in a primary checking account and I just take any amount above that as owner profit at the end of each quarter, I hope to grow that to about a six month operating reserve in our business bank account. And I plan to do that by simply leaving an extra month's expenses at the end of each quarter in our business checking account. So when I take out my Q4 2019 profit at the end of next month or at the end of this month, I'll leave in three months of operating expenses instead of two. At the end of quarter one, 2020, I'll leave in four months of operating expenses and so on. By the end of next year, we'll have hopefully six months of operating expenses in the checking account again. The key to surviving a recession or just a slump in revenue is to simply not run out of cash. Apple famously has $245 billion in cash on hand that hasn't been distributed to its shareholders as dividends. In 1997, Apple had to take a 150 million dollar investment from Microsoft to survive. And some people kind of speculate that Apple keeps as much cash on hand possible so that it can just survive any kind of downturn and have a chance to reinvent itself should the company find itself in the same position as it did in the mid-90s. The next thing we're doing is we are developing an expense reduction plan. So in addition to some of the other expenses we've already cut, I probably have another list of about $10,000 a month per in advertising and other costs that we could reduce should that become necessary. There are ad campaigns that we do that are marginally profitable and other kind of recurring expenses that we could do without if we absolutely had to. But we're going to leave those in place right now. I also set a three month average in revenue and profit that we would need to hit for that expense reduction plan to go into place. So there are some other things we could cancel. If we hit below a certain number every month, I'll pull the trigger on that and cut those expenses as well. One thing that isn't part of our expense reduction plan is people. I've committed to my team of seven. Over the long term, I would rather cut expenses to the bone or stop paying myself for a while before laying anyone off. I can always turn expenses on after a recession. Replacing people that were laid off is just a lot more difficult. So if I find myself having to laugh an employee, I've seriously screwed something up financially in a company. Hopefully that won't happen ever. Next thing I'd suggest that you maybe do that maybe isn't applicable to us, but is to reduce your reliance on your line of credit. So MarketBeat. As a company, we operate debt free, but many companies that sell physical goods finance their inventory with a line of credit from a bank. So depending on the terms of financing, a bank may be able to call businesses loan and demand full repayment within 30 days. It is pretty rare, but it can happen If a business's financials start to falter or a bank has kind of some setbacks of its own, you can mitigate against that risk by either reducing the need to rely on your company's line of credit or by having some other financing ready to go if your bank decides to set up doing business with you. If you do happen to have a business that relies on physical inventory and bank financing, it is probably a good time to review your inventory management practices as well. Because if you're sitting on a bunch of slow moving inventory or debt inventory, it's going to be a lot more difficult to liquidate it or sell through it during recession than it is when the economy is chugging along. So by keeping your inventory kind of on the lighter side, you have more cash on hand, more flexibility about what skus to stock during a downturn. The next thing you should do is to diversify your customer base. So we work with over 100 financial advertisers and we have about 6,000 customers that pay for premium subscriptions. So we think this gives our business pretty good revenue diversity. Because if any one of our advertisers or customers stops working with us, we probably won't even notice. So if you have a business that's less diverse and is reliant on fewer customers, you probably want to look at that. So I'd suggest you look at your five largest customers and see what percentage of revenue they make up. So if you have a single customer that makes up more than 10% of your business, or the top five customers make up more than 25% of your revenue, ideally try to diversify that by ramping up your marketing budget or expanding into your other industries. To kind of diversify your customer base. Next thing you need to do is to stay on top of your invoices. So our premium subscribers prepay for their subscriptions. So there's not really any invoicing risk with that revenue stream. Our advertisers do get kind of net 30 terms. Typically that means they pay us within 30 days of their advertising campaign being delivered to their audience. So if an advertiser has a payable to us that's much past 30 days, we'll tell them, hey, you need to catch up on your invoices before we run another campaign for you. And that just prevents us from extending too much credit to any one advertiser. It's only been a couple rare cases where we've had somebody not pay us, thankfully, because it's such a small industry that if you don't pay someone, you get kind of blacklisted pretty quickly. We also try to pay our vendors in kind of net 30 terms wherever possible. Ideally, the terms that you get from your vendor should be the same or better than the terms that you offer to your customers. So if your customers are paying you on your net 90 terms and your vendors are only offering you net 30 terms, that's going to create a cash crunch because your vendors are going to be wanting payment from you before you receive income from your customers. It's also probably a good idea to think about which customers you actually want to extend payment terms to, and then try to collect any kind of old or unpaid invoices. And just make sure that you've sent invoices out for your current work as well. It is amazing how many business owners just aren't on top of their invoices and forget to ask their customers for money by sending out an invoice. We often find that many of our unpaid invoices are just the result of our advertisers simply forgetting to pay us. And often a simple reminder email is usually all it takes to get an invoice, a dated invoice paid finally, think about don't just think of recession as a storm that your business needs to weather Some industries actually do pretty well during a recession recession. If you ran a discount retail business in 2009 or an auto repair business or a home maintenance store, you probably did pretty well. Customers never stop spending entirely. They just reduce their spending or shift it to more affordable choices. So instead of buying a new car, they're more likely to hold onto their existing car and just get it maintained more. Instead of buying a new house, they might fix up the house they already have. Instead of buying at Target, they'll buy at Walmart. Instead of buying at Walmart, they're buying at Dollar General. There are actually some niche industries that did really well during the last recession. There were a lot of homes that got foreclosed on, especially HUD homes, and somebody got paid to get those houses ready for sale. So a lot of cars were repossessed during the recession, so somebody got paid to repossess those vehicles. If you were in a repo business, you probably did pretty well. A lot of people also tried to get on Social Security disability at the time, so if you were an attorney that works on SSDI cases, you probably did pretty well for yourself as well. Not that you necessarily want to get into any of those businesses, but the idea that the recession hit all businesses across the board is not necessarily true. There are some companies that actually thrive during the recession, so I don't really know how the next recession will impact your specific industry, but just try to think about what opportunities recession could create for your business. Would it create an opportunity to acquire a competitor or vertically integrate with a vendor or customer of yours? Are there any new markets that you could expand into as a result of a recession? Could you use a recession as an opportunity to get your business in the best financial shape? It's ever been on. Preparing for a recession is not just about batting down hatches. It's really about seizing the opportunities that a recession creates for your business as well. You know, getting ready for the next recession is probably it's more of an art than a science. We have no idea when it's going to occur. We have no idea how long it's going to last. We have no idea how severe it's going to be, no idea what the trigger is going to be or what industries will be particularly impacted by it. We do know that, historically speaking, that a recession will be coming at some point, and we're probably overdue for one. By reducing your fixed costs, by building an operating reserve, creating an expense reduction plan, reducing reliance on a line of credit, broadening your customer base, staying on top of invoices, and identifying opportunities that a recession will create for your business, you'll both get ahead of the next recession and also put your business in a great financial position as well. That's it for this video. Thanks for watching.