During the last economic downturn, I was at a company that sold to ambulance companies. At the time, when we thought about how we'd handle a downturn, our rationalization was that "people have heart attacks in good times and bad." Nonetheless, we felt the impact.
I'm talking about the big stuff here, things like the stock market crash and ensuing Great Depression, a major world war, a gas shortage, the internet bubble burst, and most recently, 2008's Great Recession. These are situations that make or break companies.
Plenty of experts are saying we're due for another recession soon. Whether it shows up next month, next year, or ten years from now, the fact is that the next economic downturn will come, and every company will be affected by it.
All companies need to be prepared for this inevitability--especially small companies and startups. Few are. Here are some ways to future-proof your business.
Cash is King
How much cash do you have? Too often a small company forgets the value of cash. A profit and loss (P&L) tells a story, but the balance sheet and a cash flow statement are the health report for a company. If your burn rate exceeds your revenue, you'll need to know how long you can operate for before the wheels fall off. And to future-proof your company, you need to ask, and answer, a few "what ifs:"
What if capital weren't available?
How long can you operate without new capital?
What's the availability and price of capital now?
What can you do now to lower your burn rate and increase cash in the bank?
When do you cross over from being okay for cash to less than okay? What will you do to work against going into the red?
Basically, know where you are and hedge against running out of runway. Take in available capital to give you the cushion for a downturn; know how long you can run without new revenue and create a disaster plan for the softest landing possible.
Business is full of legal contracts. It's easy to become numb to the terms in a contract. It's a good exercise to do an audit of the terms in your contracts and pay attention to the following details:
What happens if you or the person you have a contract with goes bankrupt?
What happens if there is an "Act of God" (events outside of human control)?
What happens in a contract if the current and familiar parties are no longer around? How does the contract read with no context?
A contract is a big hedge. It's crucial to read each one with a skeptical perspective. You want to know both the answer to that question and your hedge for the best result.
Power of Team
Your executive team is a powerful tool. Use it to de-risk your business and plan for the future. Bring the team together and ask the hard questions, role-play the answers, and then use what you learn to set up the best hedge. Know going into this exercise that one outcome could be "we don't have a way out."
It's no fun to plan for the worst--but it can make that worst-case scenario go a lot better if you've done what you can to plan for it in advance. And the companies that weather an economic downturn come out strong. That can be you.