The Curvy Road Ahead

The 30 years that I have been a party to American business have included some so-called “black” days on Wall Street, a meltdown of the savings and loan industry, large bank failures, the breakup of a monopoly, manipulation of the silver market, scandals that started congressional investigations, hyper-inflation, stagflation, the fall of countries, recessions and massive failures of government agencies to do their jobs.

But, never the tumult of this September.

Last month, we came to the precipice of a global economic meltdown. One news channel quoted Alan Greenspan as saying, “This is a once-in-a-century event.” It will forever change the way countries govern their public companies, quasi-government businesses and even private companies that may have an impact on the economic well-being of small businesses and consumers.

At this time the full impact on our industry cannot be forecast, but it is safe to make at least two assumptions for which we can and should prepare.

A year ago when the home mortgage crisis was just surfacing, I warned that bank credit for small business would be tightened so that commercial banks could adjust their balance sheets for the lower-quality home mortgage investments they had made. As banks began to scrutinize their policies and procedures for underwriting new loans, they even stopped lending to other commercial and investment banks.

The administration has announced an intervention plan that averted a global economic meltdown. With congressional approval, banks will be allowed to off-load the bad assets and get back to making commercial loans. Thus, the first assumption is that we still have the better part of a year before credit for small business returns to what we called “normal.”

In the absence of credit, there is the prospect of a slowing in the payment cycle of commercial payers, and higher bad debt write-offs. The healthy response for DME providers is to increase the diligence of cash management. Those who run out of cash will have a slim chance of survival. As reimbursement rates decline in 2009 and beyond, the management of cash flow will become more challenging than ever before.

There are two steps to maximize cash flow from operations.