Running Your Business During a Crisis

There’s no doubt about it. The COVID-19 pandemic has been shocking for most businesses. While it certainly has been tough to adjust, most of us realize by now that this event has lasting repercussions, and the waves of change just keep coming. If you’re one of those people who bought, opened, or expanded a business recently, you are probably angry. This is not fair. You didn’t ask for this. But this is one of those extraordinary times in history that robs us of the chance to collect our thoughts so we can confidently predict the future. Instead, business decisions are time-sensitive. This is a time for action.

First, Keep a Long View

For most business owners, 60-80% of their net worth is wrapped up in their business. So during a crisis like this one, it can feel like your world is ending. Some of us are witnessing years of hard work, evaporating in front of our very eyes. You may feel panic, so you must keep revisiting your business’s long view.

Reviewing the purpose of your business will help. Why did you get into this business in the first place? What are you attempting to do? Who are you trying to serve, and who’s ultimately going to benefit?  As a business owner, who will you become in the process and how will you evolve personally?

When you think about this crisis as a chapter in your life, instead of a permanent state, it allows you to think about what it takes to weather this storm. When you revisit the “why” of your business and think about your initial motivators, not only will it help you stay sane, but it will also help you stay driven.

Even though the world turned sideways in 2020, the reason for your business still exists. Let that purpose feed your energy and keep you on track. You may have to make many adjustments to your business to get through these tough times, but you should execute adjustments with an eye to the future and keep a long view.

Second, Don’t Fear Risk

Listen, I am not suggesting for a second that you disregard risk. In fact, I’m saying the opposite. This is a good time to look at risk for what it is, balance it, and determine how you can operate within this risk environment. After all, while risk ebbs and flows, it never really goes away. So if you think you can wait until the threat is gone, you are going out of business. Plain and simple.

Instead, be realistic about risk, and plan around it. You can’t avoid it. But if you can stay nimble and manage risk for the next year and a half, go for it.

Honest Communication is Critical

The nature of crises includes uncertainty. And uncertainty is unsettling, even upsetting, to the people around you. However, you can provide some degree of stability just by being open and honest.

Tell your people, “Here’s the situation; here’s what we’re doing; here’s my plan; here’s what we’re going to look like on the other side.” Of course, there’s always be people who don’t care or who don’t like your plan. Some people will want to leave. But your honesty and transparency will help most of your people understand that every company goes through challenges and that greater forces are at work right now. You’re not the only organization going through turbulent times. Being upfront can help galvanize your team. As any business owner who has worked with his team through hard times can tell you, times of exceptional stress and challenge bring companies together.

Margins Offer Flexibility

Having healthy margins in place in good times allows for price elasticity when needed during a crisis. If you charge premiums with enough gross margin, you can discount when needed, without losing everything. Or you can give your customers more generous payment terms. You may be able to keep your staff, even when sales fall. Conversely, a business with thin margins has no choice but to become part of the crisis when the world tilts. These companies have no cushion and fewer options.

What About Cash and Credit?

I started my first business in the eighties. A credit card was 18%, 20%, 22%, or higher. It was crazy. But today, there are plenty of credit cards out there with 4%, 6%, or 8%. So credit cards are a more practical way to get through some tough times.

Using a credit card is essentially a bridge loan. Even if you pay a little bit more in interest, you’re still dealing with a lower monthly payment. To be clear, I’m not advocating credit cards specifically. However, in today’s lending environment, borrowing is relatively inexpensive. So whether it’s a credit card or a line of credit, credit is worth having and using.

I always tell my clients to protect your cash. Make sure that you have at least six months of operating expenses set aside. Your cash plus lines of credit should be enough to get your business through six months, if you had to, without interrupting your business.

How to Get Another 30 Days

Don’t underestimate the value of giving yourself extra time. For example, say you have a credit card with a $20,000 limit, $20,000 cash in the bank, and a $20,000 bill to pay.

My advice would be to ask yourself, “When do I absolutely have to pay that bill?” If you have 30 days to pay that bill, take 30 days. Then look at your credit card and think about when you’ll get billed for this charge and when the payment is due. Usually, the amount won’t show up on the credit card bill for another 30 days AND you’ll have 30 days to pay it. By using credit to your advantage, you can give yourself up to 90 days before you have to spend the $20,000 sitting in your bank account. 

Good News/Bad News: There’s Always Another Crisis Around the Corner

Yes, we were all surprised by the COVID-19 crisis. But crises are nothing new. Health, weather, politics, and even world events act as external pressures on our businesses. These external pressures can increase at any time, sometimes overwhelming us.

The good news is that preparing for a crisis helps your business weather the storm. The bad news is that eventually, turmoil will return or arrive in a new format. Your business will always face challenges. But with the right structure, preparation, and plans in place, you should be able to come through challenges stronger than ever.