Whether you are analyzing macro indicators, or evaluating your energy costs, supply chain costs, or the rising cost of borrowing, you have probably found at least one reason for concern about the next few quarters.
Don’t panic. In 30 plus years of helping guide business leaders through difficult times, I have never seen any company, or person, benefit from panic – Not one. That is not to suggest that you should ignore what is happening. While for some it may be more comfortable to “look away,” or focus on minutia of day-to-day operations, that is rarely ever the best choice.
Some of our clients have achieved remarkable results based upon their gut instinct. However, even those who say that they rely upon “gut instinct,” actually gathered a great deal of information and analyzed the data to help inform their “instincts.”
I have had the good fortune to work with a wide range of exceptionally capable business leaders through a number of economic cycles and industry specific disruptions. What did the most successful leaders have in common?
Each slowed down and took the time to evaluate what was happening and to develop plans.
That is not easy. Slowing down to plan options can feel counter-intuitive, especially when you are facing a massive headwind. However, plan is what they did. Most had a plan and a contingency plan. Some had multiple contingency plans.
- Good decisions are made based upon good information – and better information leads to better decisions.
- Investments in cashflow disruption preparation can pay enormous dividends. Whether an interruption in cashflow leads to catastrophic failure, often depends upon a business’s ability to keep WIP flowing when a major customer’s payments are delayed. It is easier to secure backup lines of credit and working capital before it is needed. Setting up working capital lines and pre-arranged credit terms with trade creditors can be make all the difference.
- Planning should address inventory levels, supply chain deliveries, staffing levels and other key factors that may become issues under each of the plans.
- Plans may also include loss mitigation tactics, strategic acquisitions, mergers, or restructuring (perhaps using Chapter 11 of the Bankruptcy Code).
- Good, real-time financial information becomes even more essential during times of economic disruptions. From an operational perspective, changing costs of products or services delivered can quickly change the profit (or loss) on your individual products or services. While real time cashflow information will help management make operational decisions Accurate balance sheet information may be required for working lines of credit and potential merger or sale of the business.
Businesses with their own CFO should ensure that the CFO and their staff has all the resources that they need to provide accurate, real-time information. Businesses that do not have those resources internally should retain CPAs and a bookkeeping service to provide this information.
If a business review has not been undertaken by an insolvency attorney within the past couple years, a lawyer with restructuring
experience should be retained by the business without delay. An insolvency attorney can provide the information to help management formulate the contingency plans. There are some planning tools that may be available during an annual review, that would not be effective if utilized after it was known that a bankruptcy filing was inevitable.
Asset Protection – Annual Reviews Will Provide the Best Protection: By the time you know of a good reason for asset protection it is probably too late.