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Is your Company Ready for a Cycle Change?

Experts agree in emphasizing that it is practically impossible to anticipate a change in the cycle of the economy. However, regardless of when it occurs, it is something for which we should all be prepared.

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Although some have not heard about the expansive stage, there are those who are already announcing their end. One of them is Raphael Nagel, president of the Nagel Foundation, an economist and writer.

“There are several signs. For example, we see important geopolitical changes that go from Latin America to the Middle East, passing through Asia; a commercial war between the US and China indisputable; the decline in oil consumption; there is an oversupply of cheap money by the European Central Bank and we see central banks that are raising interest rates, such as in the US or Japan, which have been quiet for many years. This rise in rates will lead many of the companies that are surviving bankruptcy. “

The scenario that Nagel paints is rather gloomy. However, in this predictions, there is a phrase that is attributed to the well-known American economist JK Galbraith according to which “the only function of economic prediction is to make astrology look more respectable”. Ramón Blanco and Unai Ansejo, partners in Indexa Capital and Bewater Funds, also agree that it is impossible to anticipate when a change in the economic cycle will occur.

What nobody denies are the recurrent oscillations of the economy. So that, materialize when it is the change of cycle, it agrees to be prepared so that your company does not go to the fret.

BE PROFITABLE AS SOON AS POSSIBLE

So that this does not happen, the main recommendation of Unai Ansejo, expert in quantitative finance, is “to try to become profitable as soon as possible because when the cycle turns around the financing options are reduced. We could already see in the last crisis how the banks stopped lending, not for nothing, but because they did not have money to lend and those who had supported before asked for the return without palliatives “.

In this sense, it warns those companies that enter the round of lifting investment rounds, despite the absence of benefits, with the idea of ​​capturing in 2 or 3 years a higher round and get a higher valuation of the company. “When the market turns around, this happening is much more difficult. The level of risk of this type of companies is much higher than, in my opinion, advisable. In any case, I think it is a phenomenon more American than Spanish. Here it is difficult for someone to finance you without having an income. The companies that behave like that are a minority. “

Ansejo also distinguishes between what is a ruined businessman and another ruined one. The first is the one who, having invested everything he has, loses it and has to start from scratch. “Many of these entrepreneurs have a qualified professional profile so that, after closing their company, they return to work for other multinationals or large companies to rebuild their economy little by little. Then they decide whether to stay there or to start again. ” More dramatic would be the situation of the ruined, that is, those who invest more than they have. “These do not start again from scratch, but they do it in negative.” In other words, the formula for preserving a certain economic health is “to invest everything you have in the company, but not more,” says Ansejo.

For its part, the advice provided by Ramón Blanco is to diversify investments as much as possible. In the case of entrepreneurs, it refers to diversifying the sources of financing.

“They cannot have all the capital from bank financing, with short-term credit lines that are renewed every two years. It is better to have a significant percentage of equity, long-term debt and combine alternative financing channels.”

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