In March, Vistage International released the results of its CEO Confidence Index, which asked its members – more than 14,000 CEOs and senior executives in small and mid-sized companies – for their take on the economy and about their plans regarding staffing levels and capital investments during the next 12 months. More than 2,200 members responded, providing a snapshot of their view of economic, market and industry trends for the upcoming year.

The index is now at 72, more than 20 points below where it was for the same period in 2007. And, for the first time in the index’s history, CEOs are more concerned about the worsening economic climate than they are about hiring.

Appearing as a guest on the "Inside Arizona Business" TV program that airs Sundays on KVOA 4, I was asked by host Dana Cooper whether any company is immune from the effects of the economic downturn. At the time, I said "No." Since then, I’ve had a chance to rethink this idea of immunity; it comes down to having taken preventative measures- the corporate equivalent of a flu shot.

According to the Mayo Clinic, "A flu shot is between 70 percent and 90 percent effective in warding off illness, depending on the length and intensity of a given flu season and your overall health. In a few cases, people who get a flu shot may still get the flu, but they’ll get a much less virulent form of the illness and, most important, they’ll have a decreased risk of…complications."

In the coming months some businesses will undoubtedly get the flu and fail. And while we know of no simple remedy that can immunize you from the effects of an economic downturn, there are certain steps you can take to decrease the chances your business will suffer serious or fatal consequences.

Early warning signs

Ed Freirmuth, a Vistage speaker and financial consultant who has helped more than 200 companies overcome significant financial challenges, suggests that if some or all of the following are present it may be time to act:

• Management time is increasingly devoted to resolving problems with impatient creditors and key efforts at maintaining sales volume are being diluted.

• Accounts payable as a percent of cost of goods sold have increased, indicating the business is "leaning on the trade."

• Supplier demands for C.O.D. payments are sidestepped and searches for new or additional suppliers are initiated.

• Accounts payable have been converted to notes payable.

• Requests have been made for a "temporary" increase in an already too-tight line of credit.

• The owners of the business have begun to execute personal guarantees as a means of deflecting creditor demand for payment or threatened lawsuits.

Immunization plan

In order to increase your company’s resistance to downturn, it is essential to implement some kind of immunization plan. For example:

• Produce a five-year comprehensive snapshot of the company’s financial health. Pay special attention to the balance sheet and look for trends in key ratios. Compare your company to the industry as a whole and look for troubling trends in the industry itself.

• Assume a worst-case cash flow scenario. Although it seems intuitive, ensure that under this worst-case scenario cash out does not exceed cash in. Don’t assume you will be able to increase sales to make up the difference. In a declining economic climate you don’t want to bet the company on unrealistic projections, no matter how tempting.

• Review the terms of all loans and credit instruments. Be sure you are well within compliance of all of the terms and talk to lenders if problems arise. Lenders get nervous during tough times. Their perception of your risk as a borrower increases with uncertainty. A problem revealed and solved may enhance your creditworthiness whereas a problem "suddenly discovered" may do the opposite.

• Take a good hard look for any internal weaknesses or waste that may have crept in and "trim the fat before sales go flat." During good times our companies may suffer from excesses. Fertile ground includes over-staffing, overly liberal credit terms granted to marginally qualified buyers purely to increase sales, inventory buildup, aging receivables and declining quality. Attention to these details now will prevent the need to make what look like panic-driven corrections should problems arise.

• Think ahead. Meet with senior managers, key staff and others to determine what strategic and tactical changes might need to be made and when they might be required if sales or profits begin to slide.

• Plan a strong offense. If you are lucky enough to be one of the many companies that will prosper in an economic downturn, opportunities may await you. In a market such as Tucson where great employees seem perpetually difficult to find, this may be a time to do some targeted recruiting and hiring. In fact, almost half of the Vistage CEOs surveyed said they plan to add staff this year.

• Acquire competitors that are struggling. If you have a strong balance sheet and cash flow, banks will continue to loan money for good investments that are part of a solid business plan. This is also a time to acquire new clients. Key prospective customers may be looking to cut costs and be willing to shop around for new suppliers. Avoid the natural temptation to pull back and expand rather than contract your most successful marketing strategies.

• Ramp up your leadership skills. Remember the best way to weather turbulent times is with the willing engagement of a fired-up, focused and capably led staff. Avoid knee-jerk reactions typical of tough times like poorly planned layoffs and pay cuts. These are guaranteed to raise concerns and decrease staff performance. Talk candidly with staff and increase your presence in the company. If your employees don’t know what’s going on in the business they will make up their own stories. Finally, remember to smile. People prefer the company of optimists and will perform better at precisely the time you need them to do so.

There are winners and losers in any business cycle. Focus on the business, your employees and the opportunities that may arise and be one of the winners.

Contact Gary Hirsch, a group chair with Vistage International, gary.hirsch@vistage.com or (520) 225-0373. As a group chair, Hirsch leads a group of Tucson CEOs, company presidents and business owners who meet monthly to become better leaders, make better decisions and achieve better results. These companies typically grow at rates up to three times faster after joining a Vistage group.