Is Having a Back-Up Plan for My Business Worth My Time?

Are you Prepared for an Economic Downturn in your Business?

We’ve all heard the phrase; “The best plan is a good back-up plan!”

Most well-run governments, corporations and large organizations have back-up plans and redundancies already in place in the event of something catastrophic like a pandemic, economic collapse, recession, war, or cyber-attack…. but do you?

Many times, family-owned and small business owners are not prepared. They never get around to planning for—or worse, never think about the possibility of a disaster hitting them. The day-to-day operations are all some businesses think about, and this is where you could be vulnerable and at risk with your business.

I’ve recently been doing some Disaster Planning with our clients to help prepare them and their business. Please note that I am a very optimistic and positive individual. I don’t operate from a position of fear. However, I am realistic, and I’ve personally experienced several economic downturns--from the market crash in 1987, to early Recession in 1990’s, Bear Market in 2007, 2008 Financial Crisis leading to the Great Recession, 2015 Selloff and Covid Pandemic in 2020. You might not be able to know what will happen that will throw you or your business into a crisis mode… but you can pretty much assume if your business is around more than a couple years… something will. It is not a matter of if, but when…so be prepared.

Possible Realities We Need to Consider

While I do not suggest panic, there are some real possible challenges that our Nation and your business will face in the next year to two years. The list below is just the ones I can think of. Perhaps you can think of more:

• Trade deficit and supply chain issues. Current and upcoming trade deficit and supply chain issues could mean slower turnaround times, delivery delays and food shortages.
• Inverted yield curve. An inverted yield curve could be precursor to recession and economic slowdown.
• Higher interest rates. When interest rates are high, people will be less qualified, and able to afford payments. More cash up-front will be required for financing.
• Inflation. Inflation will mean less purchasing power, and consumers will have to choose from a more limited supply of what they can afford.
• Single owner business. When the owner is the sole driver of operations within the business, and if he/she slows personal production, dies or gets sick, the company can quickly lose, direction, focus becomes lost, and business will die off.
• Terrorist attack. While rare, terrorist attacks do happen. A terrorist attack in your city and could completely shut things down, including internet or power for weeks or longer.
• Natural disasters. Earthquakes, hurricanes, tornados, or even a bad hailstorm can cause disruption in business, cut powerlines, or damage properties. ?
• Cyber Attacks. More and more frequently, we are hearing about cyber-attacks. A hacker could get into your system and obtain client/customer information, putting you at risk for legal action.?
• Pandemics. Very few living Americans had experienced a pandemic before Covid-19. However, we all now know how a pandemic can affect life and business. Another pandemic could shut down the economy and bring your business to a halt.
• Laws are Regulations. Political changes and new laws could change how your business is regulated. Government agencies could require additional safety, credential, training, or procedures.
• Competition. A strong competitor or disruptor could enter the market and create a product that eliminates your industry, makes you product defunct, and shuts you down.
• Lawsuits. A massive lawsuit against your business could wipe your business out financially.
• Housing crisis. Should a shortage of housing or land in your area occur it may be difficult to hire qualified employees or may directly affect your own business.
• Stagflation. When the economy is malfunctioning, sometimes we have a “stagflation.” This means that the prices are higher, but you can’t charge higher prices for your products or services. This affects profits—and your bottom line.?
• Cash flow. Key employees can make or break a business. When a key employee doesn’t work out, your business can have too much overhead, and quickly can run out of cash.
• Domestic unrest. Domestic unrest, including a food shortage and riots can hit your city too.
• Balloon payments and fees. Protect yourself from future balloon rates going higher when it comes due, or unforeseen fees and covenants.?
• Disgruntled employee. An unhappy employee or recently laid-off employee can cause a lot of issues, steal files, and damage reputations.

What Resources You, Your Employees and Your Business (Should) Possess

You already have some of the tools you need to start your own Disaster Response and Recovery Plan. Here are some considerations:

• Wisdom - collective experience and knowledge.
• Outward expertise and knowledge of collective contacts.
• Cash and capital availability.
• Health, and endurance.
• Flexibility, nimbleness, and an innovative mindset.
• An excellent and resilient team that is perseveres (as proven during the Pandemic) dynamic.
• Time— if you start planning now.
• Low overhead expenses.

What or how will you Respond

What you do now will prepare you for the unexpected. You have resources, skills, and time…. What will you do with them? Here are some steps:

1. Review and add/subtract from the “possible crisis” list above and prioritize it in level of likelihood and importance (bucketize the categories).
2. Reassess to see where your opportunities are considering these.
3. Come up with a response plan to each one of the reality situations addressing
4. What to do.
5. Who does it.
6. How it gets done.
7. What is the leading indicator of any of these “reality situations” (collaborate on this with the team).
8. Frequency of review.
9. Review to get feedback, and poke holes in it. Ask your trusted advisors to do the same.
10. Prepare a communication plan for the team and focus on making it hope-filled and answer “what’s in it for them”.

Does the Owner Have a Back up Plan if He or She Gets Ill or Dies?

Of course, no one want to think about worst-case scenarios, however, they do happen. When they do, you will want to leave your leadership team and/or family with direction and reduce their stress. This can be done with good planning. Here are some steps to consider:

1. First, have a backup plan in the event the owner gets sick and can’t work or dies.
2. This plan must be in place regardless of the other economic realities

?????????????i.????List contacts to call to take on leadership and begin making decisions:

1.????________________

2.????________________

?????????????ii.????Will there be a Business Continuity Plan, or will the business be closed??(Decision is up to __________ or owner’s will).

?????????????iii.????Grant legal and financial decision-making to ______ who is advised by legal counsel.

?????????????iv.????Determine interim leadership: __________, __________ and __________ will keep day to day operations running.

?????????????v.????Deposits and Payables are reviewed by__________ and signed by __________, (and this has been arranged ahead of time and legal authority has been given to do so).

1. If any 2 - 3 of the above “Realities” occur in any order, begin moving towards the following Steps:
2. Review Cash Position:

???????????????i.????Review what transactions are scheduled to close with 100% assurance.

???????????????ii.????Identify transactions that may fall out due to “Realities”.

???????????????iii.????Review pipeline and what the likelihood of transactions closing vs. not closing.

1. Compare Cash Position to Obligations:

?????????????????i.????Review Payables, Payroll and Overhead obligations in relation to Cash Position for next 6 months.?

?????????????????ii.????Assume 50% of the pipeline dries up and 50% of the deals schedule to close fall out.

1. Review realistic revenue forecast for 6 – 12 Months and cut overhead so that the cash position supports the operations for 6 – 12 Months with little to no new transactions closing.

???????????????????i.????Identify specific overhead and payroll expenses to cut.

1. Pivot to determine where markets and customers/clients exist who need services/products you provide and where you can pursue these customers/clients.
2. Establish a plan to start contacting customers/clients on what their needs are in this new reality.
3. Contact past key customers/clients and strategic partners to identify their new needs.

ECONOMIC DISASTER PLANNING

Internal – Your Business

• Identify a Point Person who carries out the Plan
• Have a Plan

Economic –

• Interest Rates
• Inflation
• Stagflation
• Fees, taxes, unexpected payments

Global

• Pandemic
• Cyber attack
• World War III
• Local
• Natural disasters
• Riots
• Shortages

In conclusion, you, your business, your employees, and your family deserve to have a plan in place if and when the unexpected happens. No matter if it is a 2 week stay in the hospital due to a car accident, or a building fire, or something worse, having a plan could save your business. Additionally, it could help your family and will most certainly help your business to avoid common missteps that could have far-reaching ripple effects for the business and beyond.

If you would like to discuss your “back-up plan” and get a free 30-minute consultation with Waters Business Consulting Group, please contact Meghan Wier at [email protected] .