A crisis can strike any business at any time, disrupting operations, damaging reputation, and threatening survival. As an executive, you need to be prepared to manage your finances during a crisis, so you can minimize losses, maintain liquidity, and support recovery. Here are some of the best ways to do that.
The first step is to assess the impact of the crisis on your revenue, expenses, cash flow, and balance sheet. You need to have a clear picture of how the crisis is affecting your income, costs, assets, and liabilities. You also need to project different scenarios for how the crisis might evolve and how long it might last. This will help you plan your financial strategy and prioritize your actions.
Preventive vs Reactive Amid crisis, an important aspect is adapting swiftly, pivoting strategies, and fostering resilience. Let's start right now, today, at this very moment. Example: Things in your business are going well, but once a quarter or more often, pretend they are not well. Pretend you have a fallout forcing leadership to try to operate with a 10% less budget and 25% less staff, even if you do it for one day. For me, it is all about the preventive measures instead of the reactive. You don't want bad things to happen, but they will. Your weekly meetings should include a few minutes discussing what you would do if something came up. I've also found this to help get employees not to be wasteful.
The next step is to cut costs wherever possible, without compromising your core business value or your long-term goals. You need to identify and eliminate any unnecessary or discretionary spending, such as travel, entertainment, marketing, or bonuses. You also need to negotiate with your suppliers, landlords, and creditors to reduce or defer your payments, or to seek alternative arrangements. You may also consider downsizing your workforce, but only as a last resort, and with due care for your employees' welfare and morale.
Be Proactive A good management team or partners paying attention to what's going on, you should be able to spot a problem months in advance. 1. Cost Reduction: Companies analyze and trim unnecessary spending without jeopardizing their core business operations including cutting discretionary, renegotiating with suppliers, landlords, and creditors etc. YOU SHOULD HAVE ALREADY DONE THIS. 2. Workforce: Downsizing the workforce is considered as a last resort, considering the impact on employees. YOU’VE ALWAYS START HERE; THIS IS WHY EMPLOYEES HATE CORPORATE EXECUTIVES. 3. Prioritization of Expenditure: Focus on conserving resources and optimizing cash flow to weather the crisis. THIS SHOULD HAV BEEN APART OF THE CULTURE IN THE FIRST PLACE.
The third step is to secure funding to cover your cash flow gaps and to sustain your operations. You need to explore all your possible sources of funding, such as existing cash reserves, credit lines, loans, grants, or equity. You also need to communicate with your investors, lenders, and stakeholders about your financial situation and your plans to overcome the crisis. You need to demonstrate your credibility, transparency, and resilience, and to seek their support and flexibility.
Diversifying Sources of Income In times of crisis, businesses could also look into and create new revenue streams or change the direction of their current products to meet shifting consumer needs. By reducing reliance on a single source of income and increasing stability, this diversification can strengthen the company's resilience to financial uncertainty.
The fourth step is to adjust your budget to reflect your new financial reality and your revised goals. You need to update your income and expense projections, based on the latest data and assumptions. You also need to allocate your resources strategically, focusing on the most critical and profitable activities, and avoiding any risky or speculative ventures. You need to monitor your budget performance regularly, and to make adjustments as needed, depending on the changing circumstances.
Never Wait These perspectives can be a bit harsh, but as a jungle/desert miner waiting to prepare when trouble comes is 2 times trouble and stress. + Everything you're doing to survive hard times, were already suppose to be done when you didn't have problems. You should’ve already: + negotiated the lowest possible rent with your landlord. + scaled back on specific services, especially those your team rarely uses. + set up a pay-as-you-use/go system with as many vendors as possible. + know the people who use a company paid membership 5% vs. 50% of the time; anybody using 5% cut, anyone using 50% keep. (Whoever wasn't maximizing the membership should've been cut long before the money shortage.) NEVER wait for the fallout to restructure.
The fifth step is to review your strategy and to identify any opportunities or challenges that the crisis may present. You need to evaluate your competitive position, your customer needs, your market trends, and your innovation potential. You may need to pivot your business model, diversify your revenue streams, or create new products or services. You may also need to strengthen your partnerships, expand your network, or enter new markets. You need to be agile, creative, and proactive, and to seize any chances to grow or improve your business.
Don't just review your strategy, review your business. You've gone over ways to budget and find extra cash, but what are ways to expand additional revenue? What are ways you can improve inefficiencies? How can you provide additional value to customers? It is not enough to cut, finding ways to grow will also help lead to outsize outcomes.
The sixth and final step is to learn from the experience and to prepare for the future. You need to analyze the causes and effects of the crisis, and to identify the lessons learned and the best practices adopted. You also need to update your risk management plan, your contingency plan, and your crisis response plan, based on your insights and feedback. You need to build your financial resilience, your operational efficiency, and your organizational culture, so you can face any future crisis with confidence and competence.
Adaptability & Resilience Most of making it through hard times is knowing that there will be hard times. I work in jungles and deserts around the world. I'm not shocked when it never rains in the desert or a lot of rain in the jungle. That's what is supposed to happen in those places; I'm not shocked when a great employee quits and goes to work for a competitor. COVID did not surprise me. It's not that I didn't plan for failure or trying to be a doomsday preparer, common sense/100% predictable. - Adaptability is the capacity to adjust, evolve, or change in response to new circumstances or challenges. It involves being flexible. - Resilience is the ability to withstand & recover from setbacks, stress, or adversity. It's about bouncing back.