Business resilience: Safeguarding your company against uncertainty
Running a business is challenging. Beyond the standard concerns shared by most businesses, such as ensuring the quality of your company's products or services and continued growth of its customer base, companies are also subject to economic and environmental forces beyond their control. These unexpected disruptions can impact cash flow, tighten your 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 Chicago-area companies have witnessed firsthand with the coronavirus outbreak, business disruptions can emerge out of nowhere, causing businesses of all sizes to rethink their short- and long-term plans.
Weathering ever-evolving conditions involves many strategies, including evaluating internal operations. A careful review of your key processes and relationships may prompt adjustments that could make your business more efficient, more flexible and more resilient.
As you respond to current conditions, here are some challenges and key steps to keep in mind:
Take a look at your cash flow
During both good and bad times, cash flow can be a central challenge for businesses and is often cited as a top reason small business fail. In fact, 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 and options for aligning credit payments to a company's billing cycle.
• Speak frequently with customers and suppliers to stay aware of any potential changes in their businesses that could ultimately affect yours.
• 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 your credit situation
Credit can be a lifesaver during challenging financial times. During the recessions of 1990-1991 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, the majority of lenders prefer to understand how a business performs over an entire business cycle. Knowing that your business has weathered challenges and responded effectively may give a lender the confidence to extend credit.
Keep tabs on expenses
During the Great Recession of 2008, nearly 75 percent of company leaders identified cost cutting as a top priority. 2 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 crisis to determine the least painful and most effective reductions. Consider how supplier agreements might be renegotiated or payment terms restructured in the event of a crisis.
The more planning that occurs around the essential aspects of a company's finances - in good times and bad - the more control owners and operators will have over the future of their businesses.
• Rita Cook is a senior vice president and global commercial banking market executive for Bank of America in Chicago.