Is Your Company Prepared for an Unexpected Storm?
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Last year, Hurricane Harvey hit Texas and Louisiana and Hurricane Irma ripped through Puerto Rico and Florida leaving many dead and untold damage. It would seem that the government has learned a few things from past storms and appeared to be (and in reality, were) well prepared for those storms. Past mistakes can be very useful if we learn from them in terms of preparing for the future.
The business world has similar storms that hit, sometimes with warning and sometimes without warning. The weather can take a drastic turn causing the business to be super busy or perhaps experience an unexpected “slow season.” The general economy can rapidly change causing individuals to feel good, and therefore ready to spend more money than expected, or perhaps the economy turns sour causing people to hold onto their cash. A sudden change in interest rates can make borrowing more difficult and therefore cause unexpected cash flow issues. Smaller storms (raising medical insurance costs, a gasoline spike, or a shortage of available techs just when business is picking up) can occur at any time. The question is the same one the government faced, are we prepared, and do we have a plan in place…just in case the next storm hits us?
None of us can ever be totally prepared for every storm, but we can take some logical steps to help prepare ourselves, should the storm come.
- Review Your P/L with Your CPA – Few small business owners meet with their CPA except at tax time. CPA’s are trained for taxes, but good ones also can look at your numbers and offer helpful insights. Outside eyes often see things we don’t. My suggestion is simple: Meet with your CPA within 15 days of the close of each month to review and analyze your numbers.
- Create Cash Reserves – Few things help you weather an unexpected storm more than cash in the bank. As a matter of fact, cash in the bank will also help you sleep well at night. My suggestion: Build a cash reserve dollar amount into your overhead and therefore into your pricing. Each month take those dollars out and place them in a mutual fund or savings account. The goal is to have enough cash reserves to cover 3-6 months of fixed overhead.
- Pay off Debt ASAP – Debt causes pressure on the owner. Fixed debt payments are just that, “fixed.” If a storm were to come those payments still must be made. Take the pressure off yourself and the company. My suggestion: accelerate debt repayment by building extra payments into your budget and therefore into your pricing.
- Focus on YOUR Business – When a storm arrives the tendency is to look and see what others are doing. Wrong! Focus on YOUR business. Who cares what others are doing. You are only accountable for decisions YOU make concerning your business. My suggestion: Forget others and focus on what can be done to improve your situation.
- Minimize Overhead Costs – When sales are up year after year the tendency is to spend more. Why not, you can afford it! That is a great theory, as long as sales continue to go up. Increasing sales tend to cover up a lot of problems. When things are good, that is the time to reduce overhead while you can. My suggestion: Review your total overhead, fixed and variable, with the entire management team and set goals in terms of reducing the cost of overhead.
- Reward Performance You Want Repeated – When storms come, retaining employees can often be difficult. One of the keys is to reward behavior you want repeated. That means setting specific productivity and profit goal for every position within the company. If the employee exceeds their goals reward them for it. Most individuals will tend to meet, or exceed, goals when they are set and especially if there is a vested interest in doing so. My suggestion: Look at every position, management to techs, and set performance goals. Measure performance against those goals each month and reward those who hit them or exceed them.
- Understand the Business Side of Your Business – Most companies that go out of business, storm or no storm, go out because they don’t understand the “business side” of their business. The tendency is to think that bringing in a lot of money “must” mean you are making a profit. That can be true, but it doesn’t always happen that way. My suggestion: Invest some time and money into learning the “business side” of your business. If the storm comes, you will be prepared. If the storm does not come you will simply make a bit more money that you would have otherwise.
Weathering a storm requires planning and execution. I suggest you seriously think about at least one of the areas we just touched on and get it accomplished. That will bring you at least one step closer to weathering the next storm no matter when it might occur.
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Posted In: ACCA Now, Management
