Safeguard your business — ahead of an economic downturn

Even if all you had to worry about were the quality of your company’s products or services and continued growth of its customer base, running a business would be challenging enough. However, companies are also subject to economic and environmental forces beyond their control. A change in the economic cycle could disrupt your cash flow, tighten your access to credit, rattle your customers and suppliers, and even threaten the survival of your organization.

No one can precisely predict changes in the economy. As Sarasota-Manatee businesses have experienced with the coronavirus outbreak, they can come out of nowhere, which has made companies of all sizes throughout our community rethink short- and long-term plans.

Weathering ever-evolving conditions involves keeping up with trends and forecasts for your specific industry, following broader assessments of the economic outlook, ensuring the safety of your employees and, most importantly, taking a close look at your own operations. A careful review of your internal processes and your key relationships might prompt you to make changes that could make your business more efficient, flexible and resilient under any circumstance. As you respond to current conditions, here are some challenges and key steps to keep in mind. 

Cash flow

During both good and bad times, cash flow can be a central challenge for businesses and is often cited as a top reason small business fail. Companies with great products and loyal customers can still falter without sufficient liquidity to meet payroll, pay suppliers and keep the lights on.

To safeguard against temporary shortfalls:

• Ask your banker about overdraft protection;
• Speak frequently with customers and suppliers to stay aware of any potential changes in their businesses that could ultimately affect yours; and 
• Review how reliably your customers pay what they owe and create a watchlist of those who consistently fall behind. A little probing might help you address issues proactively.

Credit situation

Credit can be a lifesaver during challenging financial times. During the recessions of 1990-91 and 2001, the growth rate for commercial banking loans to businesses dropped to zero, according to the Federal Reserve Bank of St. Louis.

In a difficult economy, lenders might be especially cautious about companies they don’t know well. In fact, most lenders like to understand how a business performs over an entire business cycle. During good times, have you made capital expenditures to grow the business? During bad times, have you responded well to downturns? Knowing that your business has weathered challenges and responded effectively might give a lender the confidence to extend credit.

Keep tabs on expenses

During the recession of 2008-2009, nearly 75% of company leaders identified cost-cutting as a top priority, according to a 2010 McKinsey global survey study. However, trimming expenses across the board during an economic crisis can backfire. Instead, take stock now of all of your processes, from front-line to back-office functions, to determine what kind of savings might be possible when needed.

Make a plan for what to cut. Work through “what if” scenarios ahead of a downturn to determine the least painful and most effective reductions. Consider renegotiating agreements with suppliers or adjusting payment terms to align with revenue cycles.

In addition, automate where possible. An estimated 45% of jobs now performed by people in the U.S., at an at an annual cost of $2 trillion, according to a 2015 report from McKinsey, could be automated with existing technologies. Administrative tasks like payroll, and other record-keeping, can often be digitized at minimal cost. However, be careful when it comes to reducing headcount. Automation can be an opportunity to retrain or refocus employees on more value-added areas of your business.

Competing in business today requires endless resilience amid disruptions that can reinvent entire industries without warning. The steps outlined above are best practices that can help make your company stronger in the face of challenging, and often uncontrollable, external forces. The more you do to plan essential aspects of your company’s financial future, the more control you’ll have over your and your business’ future success.

Mike McCoy is the Sarasota-Manatee market president for Bank of America, working across Sarasota and Manatee counties to connect Bank of America’s business lines to deliver integrated financial services to individuals, families and businesses. He has over 30 years’ experience in all aspects of commercial and retail banking.