The scary (or exciting) thing about business is that things can change at any moment. All it takes is one little incident or unfortunate circumstance and your company’s entire situation and outlook can change, for better or worse. The question is, are you prepared to keep your business afloat during the rough patches that threaten to choke out your business?
One Domino Away From Disaster
There’s something to be said for being an optimistic business owner. In fact, it’s one of the traits you should cultivate. But optimism doesn’t give you a free pass to ignore reality. No matter how positive your outlook, you must acknowledge that your business is only one rough patch away from disaster.
A helpful illustration would be to picture your business as a little object in a circle surrounded by multiple rows of dominos – long rows stretching out from every angle. While the dominos are constantly there, you aren’t all that worried about them. After all, you’ve faced the prospect of them falling for years and nothing has happened. The optimistic outlook tells you that everything will remain the same.
The problem is that reality doesn’t care about your optimism. It’s cruel and unusual like that. All it takes is one domino falling and every subsequent domino between your business and the affected domino will rapidly come crashing down. You didn’t touch the domino – in fact, you didn’t do anything different than what you’ve always done – yet the effects of the fallen domino created trouble for your business.
That’s business for you. You can remain optimistic – and it’s highly encouraged that you do – but you also need to prepare for the possibility of a rough patch or period. Some are caused by isolated incidents, while others arise out of a larger context. For example:
Car accident or injury: One minute you’re driving down a familiar road with the radio playing and the next your car is pinned between another vehicle and a guardrail. Each year, 25 to 50 million people are injured or disabled in car accidents around the world and, in many cases, you can’t prevent it.
Serious illness: Modern medicine is more advanced than ever before, but that doesn’t mean you can’t get sick. Cancer rates are higher than ever and a stretch of time in the hospital can affect you (and your business) in more ways than one.
Economic recession: Sometimes a rough period arises out of something that has nothing to do with you. Thousands of small business owners found this out the hard way during the recent economic recession.
Industry challenges: Even in times when the economy is booming, it’s possible for an industry or niche to face a unique set of challenges that threaten sales and drive customers away. For example, the movie and entertainment industry has always had a huge market, but companies like Blockbuster and Hollywood Video struggled in the early-2000’s because of shifting demands.
These are just a few examples, but hopefully they provide you with a dose of reality. While you can and should do everything within your power to avoid landing in high-risk situations, there are external, uncontrollable factors that can come swooping in when you least suspect it. And when you do face them, you can’t just sit back and watch. You have to step up and keep your business afloat.
5 Ways To Keep Your Business Afloat During a Rough Financial Period
Here are some tips, strategies, and suggestions to keep in your back pocket:
1. Tighten Up Your Budget
The first thing you need to do when disaster strikes is reassess your budget and tighten up the loose bolts. A few hundred dollars here or a couple thousand dollars there might not be a big deal when your business is clicking on all cylinders, but it can bleed you dry when money is tight.
Sit down and analyze every expense your business has. With all the numbers and spreadsheets in front of you, grab a highlighter and mark the superfluous expenses in one color. (These are things like bagels in the break room, software that rarely gets used, magazine subscriptions for the waiting room, etc.) With a different color highlighter, start marking the expenses that are questionable. (This may include something like overtime pay or the planned purchase of new computers for the office.)
The items that you highlighted first are the ones you can go ahead and strip right now. The items you highlighted in the second color are the next ones on the chopping block. If things continue to get worse, you can chip away at these one by one as needed.
2. Never Dip Into Business for Personal Expenses
When you face a tough situation in your personal life, it can be hard not to dip into the business to cover your personal expenses. However, you should never do this. Not only does this come with complicated tax implications, but it’s a surefire way to run your business into the ground. There are always other options.
Take a car accident, for example. The expenses can pile up after an accident, but there are multiple ways to cover medical bills. For example, the other driver’s car insurance policy, your car insurance policy, personal liability suits, etc. Exhaust all your options in a situation like this before ever thinking about business funds.
3. Renegotiate Debt
It’s debt that keeps most business owners awake at night during a particularly rough period.
The worst thing you can do during a rough patch is ignore debt and stop paying. A far better strategy is to renegotiate your debts with lenders. If you have a strong history of paying on time, they may be willing to restructure your debt. This includes accepting smaller repayments over a longer period of time. While this ultimately increases the long-term cost of the loan, it provides short-term relief when you need it most.
4. Trim Marketing Fat (But Don’t Overdo It)
Marketing is one of the trickiest areas of business to deal with during a rough patch where money is an issue. While you want to cut back on expenses, you have to be careful not to completely eliminate your marketing strategy. This can actually hurt you more than help you.
You’ll have to get creative about how you handle your marketing budget. Instruct your team to stay aggressive with marketing, but to focus on tasks that don’t involve a lot of money. In other words, you’ll be going with a more organic/grassroots strategy for a little while.
“A good principle to follow for focusing on marketing is the Pareto Principle or the 80-20 rule which states that 80% of a business’s success can be derived from 20% of its marketing efforts,” business consultant Nancy Perkins writes. “It is the task of the marketing team to determine what marketing efforts to prioritize and to focus more on while putting the other strategies on hold.”
5. Call in Your Favors
If you’ve been in business long enough, you probably have a long list of people you owe, as well as people who owe you. It’s not a tangible list but you have a mental ledger somewhere that keeps track of these things. Now’s the time to finally call in these favors.
If you’ve done something to help someone in the past, you’ll probably be surprised by how eager they are to assist you in your time of need. Don’t be ashamed of asking. It might only take one or two well-timed favors to get you back on track.
Hope for the Best, Prepare for the Worst
Part of being a good business leader is looking ahead and figuring out what you would do in “if” scenarios. In other words, if something bad were to happen – such as a PR crisis – what steps would you take to address the issue in a timely and effective manner?
It’s a cliché, but there’s a lot of truth to the idea that you should hope for the best while preparing for the worst. Will all the negative situations covered in this article come crashing down on your business? Probably not. But could any one of them affect you at any given moment? Absolutely. Be prepared for this to happen at some point. You can keep your optimism and avoid finding yourself in a situation where you feel there are no options.
This article was written by Franklin Manuel from Business2Community and was legally licensed through the NewsCred publisher network.
The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this article. First Republic Bank does not provide tax or legal advice.