Everyone has experienced a financial shock, if not in business certainly in their personal lives. An unexpected car or home repair are common examples. In business, a financial shock can come from things close to home. These might include, a sudden need to repair or replace equipment, a vendor raising their prices, damaged inventory, or natural disasters.
Shocks can also come from any number of economic downturns. For example, oil prices skyrocketing and resulting in raised fuel costs or a recession.
Whatever the case may be, a successful business is able to quickly rebound from a financial shock and remain viable. Agile companies can maintain operations, keep employees on board, and continue providing products and services. But creating an agile business takes planning. Follow these tips and your business will be able to better absorb unexpected shocks and keep moving forward.
Always Maintain Some Cash
Assets and investments are great things to have most of the time. Unfortunately, in the middle of a crisis, they can be pretty unhelpful since you can’t immediately convert them into cash. There’s paperwork involved. You may even have to find a buyer.
To protect your business you should always keep some cash reserves as well as assets that can be liquified quickly. Don’t wait for crisis to hit to ensure you have cash on hand.
When you see trouble on the horizon, you may want to start liquefying some of your assets. Remember that in a recession or other crisis, having cash on hand will give you an advantage over your competitors.
Keep an Impeccable Credit Rating
Depending on the factors that led to the financial crisis, you may need to borrow money. To put yourself in the best position possible, always maintain an excellent credit rating. Remember that in a crisis lenders are always interested in mitigating their risks.
Having great credit also helps to ensure that you get the best rates and terms possible. You’ll also be able to secure more credit if you can prove that you are financially trustworthy. Your ability to secure business loans means you can:
- Buy inventory on credit
- Cover payroll
- Cover utility bills and other expenses
- Take care of emergency repairs or expenses
- Finance growth
Without a good credit rating, you could be limited in your choices when it comes to financing what you need. In the worst cases, you may not be able to get credit at all.
Stay on Top of Your Cash Flow
Cash flow is the money flowing into and out of your company. When faced with a financial crisis, it’s imperative that more flows in than out. This begins with ensuring that you actually get the money you expect to be incoming.
That, of course, means working with customers to ensure that they meet their obligations to you. Don’t wait until a crisis hits to deal with cash flow. Instead, use a reliable AR system that provides you with detailed cash flow reporting. If necessary, consider hiring a collections agency to hunt down the money that customers owe you.
Thoughtful debt management is important as well. In order to stay above water and keep your business running in a financial slump, you may need to reconsider how you are paying your debts. It may be time to reduce payments to minimums and work with creditors to get extensions. You need capital at a time like this.
Be Intensely Competitive
Of course, in addition to being more vigilant about collecting existing debt, bringing on new customers is a great way to increase your cash flow. If you take this route, you will need to be even more intensely competitive than ever.
Remember that if economic hardships are impacting you, they are likely impacting customers. Consumers will be cutting back on spending. They’ll also expect to get the most that they can out of every purchase they do make.
You can help to reach your goals by drawing customers away from your competition with better prices and better service. This is the time to offer sweetheart deals, cut your profit margins, and throw in extras.
Stay on Top of Expenses
Cutting back on expenses can be a sudden shock if you haven’t operated that way in the first place. This is why it’s important to always be mindful of expenses. Everyone in the company must be required to track expenses and work within a budget. This instills financial discipline, and teaches people to be mindful of what they spend.
It is also helpful to tie extras such as bonuses, company events, and other incentives to the company’s financial performance. This way, when these things need to be cut or eliminated, employees are able to see the direct connection to something they can quantify. They don’t simply assume they will continue to receive these perks in every scenario.
Of course, this is an area where leading by example is key. Ikea founder, Ingvar Kamprad embodied this. Frugality wasn’t just part of the company’s branding, it was something he applied to his own life as a business leader as well. When employees see upper management and ownership being mindful of their own expenses, it’s easier for them to follow that lead.
Keep a Customer Service Focus
The truth is, when times are tight, businesses often have to make choices that do impact their customers. You may need to do any of the following to stay afloat after a financial shock:
- Closing down or consolidating brick and mortar locations
- Eliminating free shipping
- Cutting down product lines
- Reducing staff
These are simply necessities at times when the economy tanks or you business hits some sort of crisis.
One place where you should not ever cut back is customer service. Not matter what else must be trimmed, it is imperative that you customers know they will always deal with workers who are friendly, knowledgeable, and empowered. As a leader, you can help by maintaining high employee morale in difficult times.
Nearly every business will face financial shocks, and not all will survive. Some will find ways to thrive during these downturns. The path to success is being financially prepared, offering something your competitors don’t, instilling a sense of financial discipline into your employees, and never compromising customer service.
About the author: James Daily is a blogger and financial advisor at Flash Essay. When he is not involved in career-related tasks, he follows his other many interests, including astronomy, psychology, and cinema. Feel free to contact him via his personal blog Brainished.