How ready is your business for the next economic downturn?
Most people don’t think of the next financial crisis to come, at best some of them think of how to survive it. And while it is crucial to survive an economic crisis, the best entrepreneurs think of how to thrive in such a dramatic episode. Any business owner, and key management figures should have a crisis management plan in place. The world has known major financial crisis before, with a certain regularity, so there is no reason to stick your head into the sand and avoid the next economic downturn.
These tough economic crises are characterized by a crash of the stock market, a drop in demand, a spike in unemployment. Seems hard or almost impossible to survive such an accumulation of problems. Not so much if you’ve prepared yourself, your business, your staff to handle such a situation. Since there have been other financial crisis in the past, there are good lessons to be learnt.
When a difficult situation hits, your company will take some measures, but so will your customers and your suppliers. Everyone wants to cut costs during financial distress. All businesses will have to re-evaluate their expenses, their relationships, their employees. Staff cost is one of the most significant expenditures for a company, so you will want to reduce your costs, either by letting some people go, or by reducing the salaries.
Businesses will try to delay payments, to keep as much cash at their hands. This is understandable, but this would affect your business in turn. Make sure you have a very clear picture of the customers who owe you money. You should strive to retain your best customers They will keep your business afloat. Contact them to pay their bills, offer them discounts if they pay them now. Some economic activities are hit harder by a financial crisis, some less, some companies are stronger than other when dealing with such scenarios. You should analyze your customers to determine the most vulnerable ones, and the most valuable ones.
But at the same time, the economic downturn is affecting your business too, you will want to obtain any favorable renegotiation of prices, payment terms, etc, to make sure you have necessary cash for your business.
Communication and trust are essential in managing any crisis. You should tackle any problems head-on, both within your organization, and outside, with your customers and business partners. Transparency and honesty are key here. A good, frequent, to the point communication makes a very big difference.
As a risk averse business owner, you should have contingency plans for any type of crisis that may hit your company. We’ve witnessed at least one financial crisis, during our lifetime, while working in a company or managing a company. We should know the cascading negative effects they have on almost every sector, hitting many millions of people, at once. They shouldn’t be a surprise that hits us. Rather something we are prepared for, where we respond calmly and with swift measures. They will make the difference.