During times of great economic uncertainty, it is wise to prepare your company for potential hard times, such as those we are facing now with the coronavirus pandemic. If you believe your company is vulnerable to the effects of an economic downturn, here are 7 steps you should take to prepare.
1. Take immediate action
Take swift action to reduce expenses and control spending wherever possible. Steps like implementing a hiring freeze, eliminating discretionary spending, and cutting non-performing team members, can make a big difference. In times like this, rarely do business owners regret moving quickly to preserve cash.
2. Develop a phased contingency plan
If your business starts to decline, you don’t want to waste time trying to figure out what to do. Establish a phased contingency plan ahead of time, specifically identifying triggers and the corresponding actions you will take as a company to cut costs. A two or three-phase plan is recommended. In order to develop your plan, the company should:
- Identify a prioritized list of non-essential spending cuts that could be made
- Create a forced ranking list of employees by department (most valuable to least valuable)
- Using the forced ranking list, develop a prioritized workforce reduction list (i.e. if cuts had to be made who would you cut 1st, 2nd, 3rd, etc…)
- Develop a compensation reduction plan (e.g. 10% management pay cut)
3. Identify at-risk customers
Identify those customers that are most at risk and reach out to see how you can assist. Proactive communication can often lead to out of the box thinking that is critical during difficult times and can solidify your relationship.
4. Communicate with existing/potential funding partner
Communication during difficult times is critical. Even if you have to deliver bad news, it is always better to be proactive and avoid surprises. Treat your banker and other financing sources as true partners and solicit their help—you are much more likely to get them to work with you. It is also important to review backup or bridge funding options by communicating proactively with existing and potential funding partners. Review all available lines of credit and talk to key investors about potential bridge financing options.
5. Align on the plan with the executive team
Involve your leadership team in the brainstorming and decision making process in order to get all ideas on the table and achieve consensus. A unified leadership team that is committed to a common goal and that communicates the same message internally and externally is much more likely to succeed.
6. Develop a communication plan to employees
Employees will be understandably nervous during tough times. The more you can communicate and let them know what is going on the better. Even if you have to deliver bad news, be direct and honest and give them a sense of the big picture.
7. Stay informed and flexible
In addition to staying current on world events, you should identify the leading indicators for your business that will give you an early warning that things may be slowing down. The world economy is in uncharted territory, and you should stay as flexible as possible and be prepared to act with urgency as the situation dictates.
Uncertainty in the economy doesn’t have to equal uncertainty in your business. With these steps, you can find some stability during a time when each hour brings new changes and reforms. For those of you who are clients of the inDinero family—including tempCFO, mAccounting, The Accountkeepers, and Nomad Financial—know that your financial team is available by phone or email whenever you need them. We’re here to help you through this. If you’re not an inDinero client, check out our Coronavirus Updates and Resources page for news and links to help guide your business during this crisis.