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Boost your odds with a financial crisis plan

crisisCrisis management plans are critical to sound business planning, whether for personal or business purposes. Implementing a financial crisis plan may be the difference in whether you survive or fail.  This article appeared in the Corridor Business Journal on March 31, 2020.

The U.S. Department of Homeland Security has identified 16 critical infrastructure sectors whose assets, systems and networks are considered so vital to the United States that their incapacitation or destruction would have a debilitating effect on security, national economic security, national public health or safety, or a combination thereof. Presidential Policy Directive 21: Critical Infrastructure Security and Resilience, advances a national policy to strengthen and maintain secure, functioning and resilient critical infrastructure.

Critical infrastructure includes: communications, critical manufacturing, defense industrial base, emergency services, energy, financial services, food and agriculture, government facilities, health care and public health, information technology, transportation systems, and waste and wastewater systems. The government’s “policy” is to focus resources on these critical industries and direct resources to them in times of crisis. One thing seems certain: The government is going to focus its attention on protecting large employers, employees and the stock market. Assistance to small business is fluid at this writing, and may consist primarily of SBA-backed financing.

In light of this situation it might be helpful to focus on managing financial risk during this crisis.  Here are a few ideas that you might consider:

1. Identify your key business drivers. What functions must happen to allow you to do business? If you are a distributor, it may be UPS or FedEx. What would you do if they pulled trucks off the road in your area? Who are your key customers, and do you understand their position and plan? What would you do if your information systems went dark?

2. Project cash flow. The first thing that happens in a crisis is generally a hit to cash flow. Sit down and look at what you expect to happen over the next few weeks and months. What are your key costs? Do you know your break-even point? How quickly can you adjust to changing demand and pricing? Preparing to make difficult decisions early can prevent you from getting into a situation where you have lost control.

3. Review credit policies. If you normally extend credit to customers, you should be reviewing their financial position to see if changes are warranted. You may need to shorten payment terms or eliminate customer credit to some. You should also pay closer attention to your accounts receivable aging. Tighten your collection policies so that if they are behind, you begin calling customers sooner than you have in the past.

4. Examine your balance sheet. Most owners turn to their income statement when things get tight. Often the problems or opportunities are in the balance sheet. When the financial crisis of 2008 hit, Ford Motor Co. was the one auto manufacturer to avoid serious problems because they had secured a massive line of credit just before the crisis hit. Can you take advantage of the lowest interest rates in a decade to refinance some current debt to long-term?

5. Talk to your lender. Lenders know that things are almost certainly going to tighten up for many small and medium-sized businesses. Talking to your lender about your situation and plans can help to keep them on your side if things get rough. Show up with a solid business plan, including cash flow projections and you are likely to get a favorable hearing. Being part of their solution will help them to be part of yours.

6. Opportunity abounds. Those with dry powder and a strong stomach are likely to find once-in-a-lifetime growth opportunities. Keep your focus outward and think creatively.

These are difficult issues. Reach out to trusted advisors who have been through tough times and understand how to manage through them. No one should be overconfident. We’re going to have to put our heads together. •

Maurie Cashman is a member-owner of Agri-Management Services and manages its Aspen Grove Investments brand.