Wednesday, October 22, 2008

The financial crisis---quick and dirty evaluation techniques

Although this crisis may be an opportunity for some there are many who will be adversely affected.

Those who rely on their income from shares sitting in their super funds will be rightly concerned. Although their dividend income will not be immediately reduced if they have shares in the major retail players clients will be impacted as retail profits drop. Steve Keen an associate professor at the University of Western Sydney says that households cant shed children like businesses can and they will simply tighten their belts. This will lead to a contraction in retail sales.

As well, those who have been using margin loans to bolster their portfolios will need to liquidate some of their portfolios.

Businesses who are importers will need to be particularly vigilant to maintain their margins in an economic environment not hospitable to price increases.

The technique I have used to come to grips with the impacts on clients' affairs is good old-fashioned Mind-mapping. Go to this site if you are not familiar with mind-mapping and view some of the examples as to how it work.

In the middle of the page you draw a small circle entitled 'Financial Crisis'. The you move away from the circle noting the major features of the crisis (eg Falling dollar, lower interest rates, credit harder to get, share values reduced, falling retail sales).

As you develop this out you will start to get a good feel for the implications for your clients' businesses.

But then the hard work is still to come-----VALIDATION WITH YOUR CLIENTS!

This is the part where you engage with your client and understand the realities rather than proceeding on the basis of your random thoughts down dry gulches.

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