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Economic Survival Kit
Steve Studer, EVP/Chief Credit Officer, Scott Valley Bank

Can anyone remember a recession as significant in magnitude or duration as the one we have endured the last 3 years? At this point in the great recession, most of us believed we would be experiencing a much more robust recovery than what 2011 has been delivering. The momentum of the recovery stumbled during Q2 this year and will continue on a much slower pace than in many prior recessions. Many, if not most, of our clients have suffered revenue and earnings setbacks during this recession. Yet, Scott Valley Bank is fortunate to have not suffered as significant financial stress as many of our counterparts in other banks, thanks in large part to the resiliency and management strategies exercised by many of our clients. However, we are all in the collective mind of “we have had enough already”. Unfortunately, it is looking like more rough road ahead before hitting smooth pavement.

As the Chief Credit Officer of Scott Valley Bank, a larger portion of my job duties these days involves remediation of some of the more serious client problems, disposition of some of the remnants of foreclosed assets, and generally making the lives of the Relationship Bankers in the organization as challenging as is possible with new rules and procedures designed to stop the flow of items one and two above. (OK, that part about intentionally making Relationship Banker lives more challenging was a little Credit Administrator humor.) While many days it seems the focus remains in these general endeavors, the reality of my current duties, once reflected upon, can be described more broadly as helping the Bank and its clients survive the current economic conditions.

While working through problems with some of our clients, and reviewing and observing many of our more successful clients, several survival techniques and just plain good management practices have arisen that are worth sharing. This article therefore, is an attempt to communicate a few of those practices that have worked for others. During current economic conditions, any advice, wisdoms, or just good management practices that can be conveyed may help drive greater successes for all of us.

Many of our clients have done a nice job of transitioning their business models into opportunism from pessimism, and active from reactive. While not all of us are in industries with flexibility of model reinvention, here are a few ideas that many of the successful businesses have followed:

  • Don’t give up on Revenue – Revenue drives all of our businesses. Many have seen revenue declines. More success has been seen for those who have not given up on staying close to their largest clients needs, and have expanded their focus beyond their basic model. They know their customers will return and they need to be ready to serve those needs. Reach out to new client opportunities as many businesses now have a reason to question some of their suppliers.
  • Look for opportunities! - Opportunities exist for those who can focus externally rather than internally. For example, some of our investor clients have found ways to invest in the residential rental market to take advantage of the lower costs in hopes of realizing benefits in the future.
  • Shift Focus! - Our project related clients have expanded their focus toward more public job opportunities as the private sector has contracted. Stay flexible so you can be an active participant for other types of job opportunities.
  • Singles versus homeruns! - Diversify your client base when you can. One of our clients lost its major customer due to a plant closure and worked extremely diligently to successfully replace a good portion of that lost revenue from a greater number of smaller clients. More granularity in your customer base lowers the risk of losing a large customer.
  • Follow the niche! Some clients have expanded certain niches that have shown better opportunities and have shifted focus, resources and energy to the more productive areas.
  • Diversify those products One large customer found other product lines closely related to what they do to fill a significant need for one of their largest customers. This has resulted in significant revenue growth.
  • Costs can always be controlled – don’t believe in fixed costs! Those unable to drive revenue in a positive direction have focused on right sizing their overhead and cost structures to fit their new revenue levels.
  • Hold the line on costs! - Some clients have achieved cost control success by holding managers accountable to a very sharp-penciled budget of expenses and are incenting for outcomes that hit the cost expectation.
  • Sacrifice comes in many forms! - Many of our clients have sized their own salaries or withdrawals from their companies downward to match the revenue decline until times are better. Many of our clients are wearing more hats in their businesses these days in an effort to keep costs down.
  • Costs are more negotiated these days! - Some clients have renegotiated leases and or have given up lease space to fit their operations into lower overhead space. People are more willing to negotiate on costs in order to keep your business these days, take advantage if possible.
  • Overhead comes in many forms! - Some clients have cut overhead by temporarily reducing some employee benefits including shorter vacation allocations, and shifting a greater portion of employer health care costs onto the employees. We all know the risk of these strategies, but good clients are trying to keep key people employed within their companies, albeit at lower costs, so that they will be around to grow the business in the future when conditions improve. This strategy sounds like harshness for the employee, but in reality jobs are being preserved rather than adding to the unemployment rolls.
  • Financial Flexibility is King! - Easy for a Banker to say “stay liquid” or keep equity levels high as those things keep loans paid. However, it is a fact that the more leverage you carry and the less liquidity available the greater the risk that someone else is going to control your outcome.
  • A good source of liquidity is your receivables. - The best source of cash is to collect your sales rapidly. Many clients have taken a more proactive direct approach in realizing their sales revenues.
  • Support your own company! - Many of our clients have found they have to give back some of what they took out of the company to get over the hump in this economy. Supporting your own company stands out in your banker’s mind as a demonstration of your commitment and your capacity as an owner.
  • Remember Your Team! - Not all survival techniques and strategies are financial and all techniques can create stress and impact the entire staff in your company. These things are not done alone or in a vacuum and employees, family members and others make up much of the support mechanism for successful navigation through these waters. Celebrate small successes, as sometimes those may be all you see during tough times. Our clients recognize that while times are tough, morale and energy are components needed from all participants to achieve success.
  • Take care of YOUR mental Health! - In two words – Fly Fishing! Find time to let off steam, relieve stress, and realize that your business is what you do and may be a big part of who you are, but it is not all that you are. Members of the Bank’s team take part in Fly Fishing trips, century biking trips, family vacations, and maybe, if we are lucky and can talk the boss into it, the occasional, as yet unseen, junket, sponsored by the bank for pure morale purposes. (I’ll let you know on this one)

We know things are getting better, but definitely too slowly to suit all of us. We need stamina for the long haul so that we remain positive. We clients and bankers have done a good job so far. The majority of our clients have successfully navigated rough waters to this point and the Bank remains solid, despite the extra work added recently. I hope that the above ideas gleaned from Scott Valley Bank clients will provide insight into successful practices for 2011 and beyond.


The Vault welcomes you to share your ideas for best practices to survive and thrive in this challenging economy and we will share your suggestions in future issues. E-mail us at [email protected].
View Scott Valley Bank - The Vault - August 2011