BEST PRACTICES
BEING RESILIENT WILL HELP COMPANIES
SURVIVE DURING ECONOMIC CHALLENGES
Even if all you had to worry about were the quality of your company’s
Doug Sherman is Treasure Coast market
president for Bank of America.
BEST PRACTICES/BANKING
DOUG SHERMAN
products or services and continued growth of its customer
base, running a business would be challenging enough. However,
companies are also subject to economic and environmental
forces beyond their control. A change in the economic cycle
could disrupt cash flow, tighten access to credit, rattle customers
and suppliers and even threaten the survival of your organization.
No one can precisely predict changes in the economy. As
Treasure Coast businesses have experienced with the coronavirus
outbreak, they can come out of nowhere, which has made
companies of all sizes throughout our community rethink their
short- and long-term plans.
Weathering ever-evolving conditions involves keeping up with
trends and forecasts for your specific industry, following broader
assessments of the economic outlook, ensuring the safety of employees
and, most importantly, taking a close look at operations.
A careful review of internal processes and key relationships
may prompt you to make changes that could make your business
more efficient, flexible and resilient under any circumstance. As
you respond to current conditions, here are some challenges and
key steps to keep in mind:
EXAMINE YOUR CASH FLOW
During good and bad times, cash flow can be a central challenge
for businesses and is often cited as a top reason small
businesses fail. Companies with great products and loyal customers
can still falter without sufficient liquidity to meet payroll, pay
suppliers and keep the lights on. To safeguard against temporary
shortfalls:
• Ask your banker about overdraft protection;
• Speak frequently with customers and suppliers to stay aware
of any potential changes in their businesses that could ultimately
affect yours; and
• Review how reliably your customers pay what they owe and
create a watch list of those who consistently fall behind. A little
probing may help you address issues proactively.
ASSESS CREDIT SITUATION
Credit can be a lifesaver during challenging financial times.
During the recessions of 1990-91 and 2001, the growth rate for
commercial banking loans to businesses dropped to zero, according
to the Federal Reserve Bank of St. Louis.
In a difficult economy, lenders may be especially cautious
about companies they don’t know well. In fact, most lenders like
to understand how a business performs over an entire business
cycle. During good times, have you made capital expenditures to
grow the business? During bad times, have you responded well to
downturns? Knowing that your business has weathered challenges
and responded effectively may give a lender the confidence to
extend credit.
PREPARE FOR DISASTERS
When a cyberattack takes down a website, a key employee
leaves a firm or a natural disaster strikes, a company’s everyday
operations can be threatened. The risk of adverse events may be
greater than you think, and they can be particularly devastating
during times of economic stress.
By 2018, business cybersecurity breaches had increased by 67
percent in five years, and during the first seven months of 2019,
the U.S. experienced six climate and weather catastrophes with
losses of more than $1 billion each. One in four small businesses
fails to reopen after a natural disaster. Preparing your company
to withstand challenging circumstances can make the difference
between rebuilding and going out of business.
WATCH EXPENSES
During the Great Recession of 2008-2009, nearly 75 percent of
company leaders identified cost cutting as a top priority. However,
trimming expenses across the board during an economic
crisis can backfire. Instead, take stock now of all of your processes,
from front-line to back-office functions, to determine what kind
of savings might be possible when needed.
Make a plan for what to cut. Work through “what if” scenarios
ahead of a downturn to determine the least painful and most effective
reductions. Consider renegotiating agreements with suppliers
or adjusting payment terms to align with revenue cycles.
In addition, automate where possible. An estimated 45 percent
of jobs now performed by people in the U.S., at an annual cost
of $2 trillion, could be automated with existing technologies.
Administrative tasks like payroll, and other record-keeping, can
often be digitized at minimal cost.
However, be careful when it comes to reducing headcount. Automation
can be an opportunity to re-train or re-focus employees
on more value-added areas of your business.
Competing in business today requires endless resilience amid
disruptions that can reinvent entire industries without warning.
The steps outlined above are best practices that can help make
your company stronger in the face of challenging, and often
uncontrollable, external forces. The more you do to plan essential
aspects of your company’s financial future, the more control you’ll
have over your and your business’ future success. v
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