Financial Disease #6
The last economic storm may have left you feeling like a small boat on a vast ocean with no help in sight. Many small businesses did not survive. Others never fully recovered. When the next financial storm rolls across the landscape, what would you do this time? The economy can change in an instant without warning. Would you hide in your office? Unfortunately, too many businesses do just that. Behaving like a deer in the head lights, frozen in a state of inaction. This could put your business in harm’s way.
Your inaction could trigger the onset of Economic Scurvy. This is a disease caused by contracting business cycles. During a slow economic climate, financially weak or unprepared organizations exhibit anemia, exhaustion, and swelling ulceration. Then they will start to lose business. Their organizational teeth may loosen and fall out. Typically they will bleed cash from various parts of their business. A business with economic scurvy will look weak, feel sad and be wrapped in a sense of dread. They will become bloated and their ability to move becomes restricted. Some businesses will not survive from this disease.
A business that prepares for the worst is more likely to survive it. A plan of action is advantageous for a business in weathering a downturn. A plan will provide clear action steps that will enable a business to respond quickly. For example, an annual budget process that includes best case, worse case and expected case scenarios would be helpful in easily determining those areas that need to be realigned to meet a changing business environment.
However, let’s assume your business is similar to other businesses and you have no emergency response economic plan in place when a downturn hits unexpectedly. If so, then below I have listed five common sense suggestions to help you navigate the next economic storm.
- Watch Cash Carefully – This is the easy one, but two few companies respond quickly when the storm clouds begin to form. First, watch your cash flow daily like a hawk. Project out your cash flow for at least six months. Second, eliminate all unnecessary spending. Third, tightly manage inventories. Forth, get aggressive with collections and stretch out payments. Fifth, look under every rock to delay expenditures, eliminate non essentials, sell underutilized assets and lower you fixed cost footprint.
- Clear Out the Deadwood – View this as an opportunity to let go of people who are malcontents, complainers, don’t perform and bring everyone else down. A few bad apples will spoil the whole organization. Removing the nonperforming malcontents will be a breath of fresh air for the entire organization. Attitudes matter, you don’t want the naysayers in your lifeboat.
- Strengthen Banking Relationships – Before the big stock crash Ford went to their lenders and locked in funding to rebuild. This allowed them to weather the economic storm of 2006 and unlike their competitors did not receive any bailout funds. During this period of reduced sales they focused on the future and came out of the economic storm in the better shape than when they entered. So, always stay close to your lenders. You never know when you may need them.
- Involve your Employees – Economic storms are stressful periods. The more that you can assure your employees of your plans – the better they will feel and in turn – you will be. Ask repeatedly for their opinions, suggestions and help. You will be surprised when they become part of the solution. A feeling of unity and positivity from involvement will ripple through your entire organization, creating an upsurge in productivity. Celebrate each milestone and each month’s survival. Instill the attitude that you are building for a bright future.
- Reevaluate your Strategies – This is a great opportunity to critically examine your business. What is working? What is not working? Do you need to let go of certain products and services? Grow others? Or find new avenues? Strategic focus is leveraging. So determine your path, involve your employees and fully commit to making it happen.
In summary, your business can survive tough times. What you should remember is this, “Tough times don’t last but tough people do.” Planning for the worst doesn’t make you a pessimist. Success is nothing more than a collection of small, but smart moves that protects your financial future and your employees.
Customer needs’ change like the weather, your business must adjust. A smart approach is to reevaluate what you’re offering to the public. Then determine what the public really needs that you can provide competitively. It is easy to assume the best, but if you are not fully attuned to your customer needs’, it could be a death sentence for your small business.
Follow the tips listed above and create a sound operational platform for your small business going forward. Action is the key to success. While everyone else is scrambling to cut jobs and reduce hours, your business will be using the downtime to earn new business. Weathering a financial storm is tough and stressful. The resourceful companies consistently capture the available opportunities and take the necessary steps during the hard times to lay the groundwork for future prosperity.