As we’ve seen repeatedly in the past, a financial crisis in business can be tricky to navigate. History is riddled with the remains of companies that found themselves suddenly insolvent or forced out of business due to liquidity problems. Even though we like to pretend that these crises won’t happen, they never cease to pop up periodically. Sometimes these rough spots are due to broad market factors such as excessive debt built up in a financial system, overpriced assets, or other issues. Other times, financial crises occur in particular industries or are even confined to specific companies and due to more limited factors. Nevertheless, these crises can quickly bring down a business if not handled properly. Here are a few tips to help your business to survive the next crisis.
- Never forget that, in a crisis, cash is king. In normal times, assets of many different classes are great to have on your personal or company balance sheet. They can help you build equity and grow the value of your company through appreciation. However, during a crisis they can be extremely difficult if not impossible to sell and convert to cash. You can face similar problems in leveraging these assets as collateral on a loan, should you need quick access to liquidity. One of the keys to surviving any financial crisis is to keep abundant cash on hand so that you can wait out the storm. If you want your business to survive, make sure that you don’t overcommit your cash. Remember to stay liquid if you want to stay afloat.
- Trim the financial fat wherever possible. As soon as things start to tighten up, it’s critical that you conduct a thorough review of your income and expense statements. Look for any areas where you might be able to make cuts, no matter how small. However, be sure that you don’t cut off your nose to spite your face. Remember that, when you come out of the other side of a crisis, you’ll need to be ready to resume more normal operations quickly. This means not dumping key staff members, giving up a prime location, or making other changes that might hurt you in the long run. Instead, focus on making temporary cutbacks where you can in order to help conserve resources.
- Be aware of your debts and proactive in restructuring. During a crisis, it’s quite common for creditors to get scared. They naturally see the risks rising that debtors may go out of business and they won’t be repaid. As a result, they’re often willing to help borrowers restructure or refinance their debts if it increases the likelihood that they won’t default. During a crisis, it’s imperative that you stay current with all your debts. However, make an effort to see what options are available for restructuring your loans or other payables. You may be able to negotiate better terms for yourself and ultimately conserve precious cash.
- Always protect your base. This principle should apply to your business all the time, but it’s especially important during a financial crisis. Many business owners enjoy exploring new projects or ventures, some of which may be far afield of their core business. During a downturn can be a great time to look for opportunities, and you may even decide to pull the trigger on some deals. Just make sure that you don’t ignore your core business. Whatever lines of business are providing the income for you to sustain yourself need to be well-tended. It’s fine to look at other deals – especially if you can take advantage of the crisis to buy assets on the cheap – but ignoring your core business can cause cashflow to quickly dry up. If you aren’t careful, you may end up being the one selling assets for less than they’re worth.
Regardless of what brings them on, financial crises can be stressful, turbulent times. They require added focus and attention to detail. Owners and managers must tread carefully and conserve resources. Follow the suggestions above and you’ll be in a stronger position to make it through. For all their stress and danger, crises can represent real opportunities for learning about your business, improving profitability, and buying assets from others who lack your preparation and focus.
This guest post is courtesy of Steven McMeechan. He is a strategic marketing and communications specialist with over twenty years’ experience in senior marketing management roles across a range of industries including Information Technology and Financial Services. He works for Capstone Financial Planning and lives in Melbourne Australia.