Building Resilience as a Business Leader in Today’s Economic Downturn
No business owner wants to imagine a scenario where their business falls on hard times. However, it’s important to recognize that economic conditions, new technology, and changes in customer demands can disrupt a company’s success at any point. Today, more and more business owners are becoming concerned about the state of the global economy. Currently, over 80 percent of CEOs fear a recession is on the horizon.
Unfortunately, many businesses are unprepared to handle such tough economic downturns. After all, during the last recession (2008 Financial Crisis), more than 170,000 small businesses closed. For this reason, businesses need to start focusing on ways to build resilience into their business model to improve their chances of survival.
1. Measure Your Performance
Every company should have tracking mechanisms in place to measure the health and performance of their business. These indicators may vary depending on the type of business but could include cash flow, inventory levels, customer churn rate, and net sales revenue. These metrics can help business leaders identify concerning trends and make the necessary changes early.
2. Designate a Risk Management Leader
When the company starts feeling the impacts of an economic downturn, who will take charge of the company’s action plan? Each company should designate a leader to monitor the situation, identify risks, and recommend actions that the company can take. For small businesses, this could be the owner or CEO. Larger companies may rely on a crisis management team to oversee the efforts.
3. Diversify Cash Flow and Reduce Debt
Having strong financials is critical to surviving an economic crisis. Companies can accomplish this by increasing the amount of money coming into the company and decreasing the money going out. If a majority of your revenue comes from one type of customer, you could risk disrupting your cash flow if they stop making purchases. Instead, focus on diversifying your clients and products to help increase resiliency.
Also, most debts still need to be paid even when the economy is down. Reducing debt ahead of economic trouble can help eliminate potential liabilities.
4. Build Redundancy and Streamline Processes
Examine your business processes to find out where you have waste or single points of failure. For example, if your raw materials come from one main supplier, you can sign contracts with alternative suppliers to avoid supply chain challenges. Redundancy can be gained in many facets of the business including processes, technology, strategic partners, and employees.
During good economic conditions, too many businesses become bloated with additional staffing and unnecessary costs. This can make it difficult and painful to cut back when tragedy strikes. Instead, always look to streamline and optimize systems and processes to avoid the risk of excessive costs to operate the business.
5. Develop Mitigation Plans
Think about how your business would look if you lost 20% of your customers or if you had to lay off 50% of your team. By imagining these types of scenarios in advance, you can become more prepared to take action as quickly as possible. Try and create mitigation plans for a handful of the most likely scenarios that your business could face in an economic downturn.
6. Make Tough Decisions
Operating a business can be an extremely rewarding experience. However, some situations may require the business to make tough decisions. In an economic downturn, it’s likely you may need to eliminate staff, reduce hours, or cut bonuses. There is no easy way to explain this to impacted employees. You may feel guilty that you are shifting the business’s burden to them.
If staffing impacts become inevitable, it’s best to be as transparent with employees as possible. While employees are likely to still be very upset, being open and honest with them can reduce the sting a little. After all, you may need them back at some point when the economy recovers, so it’s best not to burn your bridges.
Let Us Help You Create a Business Resiliency Plan
At SigmaStrat, we understand the importance of planning for worst-case scenarios. Our team of experts is here to help guide business leaders through resiliency planning by developing business strategies, training, maximizing performance, and coaching executives. Contact us today to see how we can help support your organization through tough economic times.
