The headline landed this past week that so many thought might be coming…
Since 2008 virtually every business owner has thought, “when will the next recession come and how bad will it be?”
Yours truly has wrestled with the same question during moments of emotional and mental weakness in my well-documented struggle with fear.
Recently though I have wondered, “could I approach a market dip with enthusiasm and expectation rather than doom and gloom?”
I believe so, here is what I mean.
The lowcountry of South Carolina, where our family lives, has been on the receiving end of active hurricanes each of the past three years. It is nice to believe that we can hurricane-proof our home. The reality though is that the best we can possibly work towards is a thoughtfully hurricane-reinforced home.
My neighbor Fred actually owns a small hurricane-shutter business allowing homes and businesses to provide reinforcement in nasty weather. But if that hurricane barrels in as a direct Category 5, not even Fred’s storm panels will do much to assist in the event the entire house was blown from its foundation.
Even some well run businesses were knocked off of their foundations during the Great Recession. But in most cases, the businesses that were recession-reinforced were able to withstand.
Here are a few non-negotiables to reinforce your business so that if a market dip comes you can go into the storm with expectation and anticipation instead of doom and gloom. These are in no particular order.
First, your Vision story is even more important than cash.
Liquidity (accessible cash) is a delightful tool that we would all love to have in excess, but what is more crucial is vision.
In a market-storm debris usually gets thrown around and if your perspective is lost your course can get easily thrown off.
Ed Sheeran says in his song Lego House, “I think the braces are breaking…” In a storm braces have a chance to break and equilibrium thrown for a bit. While the storm is raging, and when the storm is complete it is both refreshing, comforting, and re-centering to know and have confidence in your heading. Ship captains and airplane pilots would surely agree.
The only way you can lead a team to run is to write the vision down (literally...write it down) and communicate it with incredible repetition.
Second, cash will offer buoyancy and give you options.
In a typical room full of business owners if I had everyone raise their hand who could make it through three months of business with no revenue...not many would be able to respond.
The hurricanes here in the lowcountry exposed some businesses to the reality that they could not even survive one week of zero revenue generation let alone a few months of market correction.
We recommend that businesses have an accessible reserve of three to six months of cash reserve to live on under the assumption that no new revenue was generated. This is not a move based on fear, but instead on wisdom.
A decision based on fear (or greed) is to have two years of cash built up (unless maybe you are a farmer:). Hoarding is not healthy either.
The likelihood of zero revenue is not very high in most industries. If you have cash, you have options.
One option is to float the entire business with no reduction of overhead, personnel, etc.
Another option is to thoughtfully trim the business expense in line with the new revenue. Obviously this is easier to do with a team of subcontractors verses a team of full time employees.
The most exciting option is to have cash available to purchase other businesses at a discount. Remember all of those hands in the room that would not go up? Many of those represent good products that are simply poorly managed and can be revived by your leadership. You may be able to purchase their business (assets, people, contracts, relationships, etc.) at a discount during a stormy market. You cannot do that though if you do not have cash.
The smoothest way to build cash that we have seen and exposed hundreds of business owners to is found in Mike Michalowicz’ simple book Profit First. Read it and do it. No excuses.
Third, team meetings will ensure that the right things will be communicated in the right way.
Having endured the geographical displacement of a few hurricanes now has helped train us on the importance of predictable communication channels.
Obviously our family is together so we are able to communicate in real time and with frequency.
Our mayor did a great job of communicating certain times where she would communicate to displaced citizens using Facebook Live.
Our local Sheriff would also hold regularly scheduled updates accessible to anyone anywhere.
If you do not have a regular method and frequency of communication (i.e. - agenda driven, leader led, regularly set team meetings), then a market-storm will further exacerbate the irregularity, frustration, and unpredictability of a communication-challenged culture. Don’t wait for a market storm to communicate using team meetings, build that habit now.
If you have clarity of knowing where your business is going, cash to keep you afloat, and a reliable method of predictable communication then your braces are less-likely to break and Ed Sheeran will be a musical companion during an opportunity rather than a prophet of doom through a storm.
Scott Beebe is the founder of Business On Purpose, author of Let Your Business Burn: Stop Putting Out Fires, Discover Purpose, And Build A Business That Matters. Scott also hosts The Business On Purpose Podcast and can be found at mybusinessonpurpose.com.