Strategies for Surviving and Thriving in This Recession: Refocus, Retool, Rethink

In a recessionary market, the prospect of declining liquidation rates and slimmer profit margins has many ARM professionals concerned. The good news is that some of the tactics used to weather this type of storm do not require substantial capital investment and can enable ARM companies to maintain their performance, making them well positioned to grow when the economy recovers. Here are a few of the ideas for you to consider:

Refocus Your Liquidation Strategy Sooner Than Later

With rising placement volumes and declining liquidation rates, some companies opt to apply more collection resources to their client portfolios in order to maximize gross collection performance. This can be successful for maintaining market competitiveness; however it is typically achieved by cutting into – and possibly eliminating – profit margins.

Another option is to be very proactive and change liquidation strategies early in the cycle, focusing resources only on those accounts that have a high probability of liquidating within a designated period of time. ARM companies who use this strategy tend to have an effective ability to prioritize their inventory and determine which accounts to send to which collectors in order to maximize liquidation performance. While some investment is required for portfolio scoring and analytic solutions, these owners confirm that they make this investment back quickly as a result of improved liquidation performance, below average collector turnover, and reduced operating expenses (Lower skip tracing, credit bureau and recruitment/training expenses).

Retool Your Staff

A recession is a perfect opportunity to make your collection operation lean and mean. Weed out under-performing collectors so the performers become more productive, and room is made for future stars. Your recruiting/training program should be selective in hiring the best candidates and putting them through a rigorous training program. Top performing ARM companies tend to identify and eliminate under-performers within the first two to four weeks of training, particularly during a down market. Those trainees who make it through the first month are likely to receive ongoing classroom and on-the-job training for another 30-60 days and are quickly integrated into a team. This makes the new collectors feel that the company is investing into their future success and they become more motivated to produce.

Rethink Your Financing Options

For ARM companies that are in need of additional capital to grow or are struggling financially, refocusing liquidation strategies and implementing operational efficiencies may not be enough. For these companies, it may be necessary to locate a financial partner or be acquired by a larger company.

In order to pursue these types of opportunities, owners and executives need to have their company information updated and a strategy in place for approaching the appropriate investor and buyer prospects that can maximize the company’s value. One thing to remember – to get a deal done in a down market it is important to have realistic value expectations and a willingness to accept some structure as part of a deal – seller’s notes, earn outs and retained equity are the three most common forms of structure. Feel free to contact us if you wish to learn more about current acquisition multiples and/or ways to pursue these types of business opportunities.

Opportunity often hides in adversity. At Kaulkin Ginsberg, we’ve witnessed the industry survive and emerge from prior recessions. As in the past, we expect that the firms who find ways to improve their operations and financial performance now will be at a competitive advantage when the economy recovers.

Mark Russell manages M&A transactions for Kaulkin Ginsberg. To confidentially discuss your business interests, please contact Mark Russell at 240-499-3804, or by email.