The Scout’s Warning, “Fail to Prepare, Prepare to Fail” and Why It Is Timely for Small Business Owners Now

There are many external variables and circumstances that can jeopardize the vitality and success of a business: Fluctuating interest rates, the stock market impacted by a slowing economy, and as is timely, a tight election bid. Prudent business owners recognize this and, while they stay focused on operating their businesses proficiently, they keep an eye on these outside influences, determine to what extent the effect will be, and then take steps to adapt. Mr. John E. Dustin, CFO of J.E.D. Insurance and Financial Services Agency, Inc., in Foxboro, Massachusetts, has a lot to say about the subject, especially as it relates to small businesses.

To start, he knows many business owners are constantly concerned about minimizing risk to ensure they don’t encounter cash flow issues, as well as protect their credit. But he wonders if they continually look at general indicators. Examples of these include:

·?????? An understanding of their own market,

·?????? What their competitors are doing; and,

·?????? What their customers want.

John says that when the economy shifts, changes in customer preferences also shift. In response to that, he says, “We need to understand where the customer is coming from. If the economy slows down, are customers going to have less home purchases, less car purchases? Business owners need to ask themselves how that will affect their business.” Keeping apprised of the market overall and having a general understanding of the economy is necessary for business owners to anticipate and minimize risks around their business. “Even when we're working in our little niche markets,” he observes.

So, what approach should a business owner take to combat these changes? Drawing on his own experience surviving economic cycles and downturns, John advises, “During those cycles, you need to have short-term goals and objectives. Financial pro formers and projections are great, but I think sometimes the economy shifts so quickly that you have to have a short-term plan to replace what your long-term plan was.” A business needs to be flexible and able to navigate new unchartered waters. ?

Interestingly, John says that he used to believe that the strongest will survive. “Now I think that you need to be a chameleon, because everything's in a constant state of change,” he relates. There are some precautionary tricks to this, though. To better position your business to weather an economic downturn, John says that certain practices need to have already been well-established. These include:

·?????? You need to monitor your cash flow. Make sure that your budget and budgeting practices support this.

·?????? You need to bill customers correctly and quickly, to reduce collection waiting time.

·?????? If you have vendors, try to get good terms. Make sure you are not paying top-dollar, and you are getting great service wherever you go.

·?????? You should have about six months of contingency money saved for an economic downturn or some other unforeseen upheaval.

For any of the above suggestions to come to fruition, customer service must be a priority. No matter what the market is doing, John is emphatic when he says that business owners must continue to keep the business moving. “Every business needs to find new customers as well as maintain existing client relationships. Every client presents an opportunity for a business to find new ways to help them. This is significantly important in a situation that affects everyone. We all had to learn how to do that during the pandemic,” he illustrates. Looking to serve new customers might mean widening your geographic boundaries, joining another networking group, or expanding your service offerings.

But what to do when times have already become difficult? Does borrowing money make sense? In a previous article, dated May 28, 2024, entitled, “When It Comes to Financing, Carefully Explore All of Your Options,” John spoke about the diverse ways to borrow money. The options he mentioned were lines of credit, equity, getting new stockholders, and even borrowing from family members. For each option, though, it is important to evaluate the pros and cons, because the idea is that it is a short-term strategy.

Another piece of advice he offers is to avoid committing to a long-term loan with strict covenants. These can be restrictive and put an onus on a company they cannot overcome. In many instances, debt underwriting is based on the business owners’ personal credit score is tied to the borrowing process and repayment plan. “I think some people don't realize that asking an SBA lender or a small bank for a line of credit with a low credit score disqualifies them from getting a business loan,” he says.

How does insurance factor into preparing for an economic downturn? As a subject matter expert in this area, John suggests two important dos and don’ts.

·?????? Do make sure that your business has adequate insurance. Identify the types of coverage you have and make sure you have the proper coverage.

·?????? Don't cancel certain types of coverage that are important. It may seem like it is a reasonable risk to go without, but if you have to defend yourself in an employment claim or a cyber claim, for example, then you run the risk of potential bankruptcy.

Small businesses are still viable businesses, so they need these same protections as larger companies. Some business owners might not have the most thorough business acumen or be familiar with available financial instruments, or dislike addressing any of the aforementioned practical matters, but, as John recommends, putting in the effort to protect your business is not a casual endeavor to be fitted in at random. He takes it one step further when he acknowledges that many business owners would prefer to focus only on what it is that they are good at, but discipline is required to apportion time to protecting the business from unfortunate possibilities. “Anything macroeconomic is going to impact a business, whether it is an election year or interest rates or both. Even more reason to set aside time to protect your business,” he states.

The company must have goals and policies clearly stated and understood by everyone. However, those plans must be adaptable to today’s rapidly changing market. To make resilience more likely in extreme circumstances, monitoring the economy, communicating with customers regularly and individually, keeping close tabs on your cash flow, minding inventory (if applicable), setting aside funds to sustain the business, and prioritizing coverage as a necessary line item in the budget are solid preparations for your business. Scouts honor. - Copywritten by Boston Edits, LLC.

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