As a double kidney transplant, the global spread of the coronavirus has me concerned and acutely aware of its health related risks. The media have flooded us with all kind of information with various degree of reliability, which can make it stressful to know how to best prepare without surrendering to a panic frenzy.
As a capital markets veteran, the view is much clearer. It is no longer a question of ‘will I be infected’ but ‘how severely ill will I be’. The facts are that businesses have seen their sales drop, the supply chain is disrupted for months to come, meetings and events are canceled, creating economic ripples that already affect the market: stocks are dropping, and their volatility has increased.
It was not that long ago that the global economy lost its footing and affected businesses of every size. We can use the lessons learned from the 2008 economic downturn to best adapt to weather what may come. We suggest that you perform these three critical reviews to best prepare your business.
1. Company Financials:
Market adjustments in 2008-2009 resulted in a tighter credit market with much less liquidity. As credit shrinks, funders’ risk tolerance diminishes. Even existing lines of credit may be called upon. We all heard, know of someone or experienced credit downgrade during the last downturn. In such times, lenders focus on the financial health of a business to extend or maintain credit facilities. They will scrutinize your financial statements, ask for forecast and detailed execution plan. Now is a great time to dust your books squeaky clean. In our experience, making small adjustments and getting guidance significantly reduce the risk of being severely penalized by banks’ reactions to what Sequoia Capital calls “the black swan of 2020”.
2. Strategy alignment:
Business owners and their executive teams have a vision and destination for their company. Current changing circumstances will demand to look at what opportunities remain worth pursuing, what investments must go through and if you should do more with less. In the last downturn, enduring companies adjusted to weather the storm and more importantly were ready to cease new opportunities when it eventually passed. Over 8 million jobs were lost in the last great recession. Management optimism will not be sufficient to reassure your staff. Share your goals for the company and let your staff come up with the steps to make it happen. If this is not your management style, collaborate with a strategist to lead the conversation with your team, define the execution and create a culture of accountability that will endure.
3. Capital runway:
In previous economic downturns, predictions were way optimistic compared to the reality. Everything fell faster and harder than anticipated. Having polished your financials and solidify your execution plan, you have now a more realistic idea of the adequacy of your cash runway. There is no shortage of capital available to fund your business right now, but it may not last. Options are abounding but what is the best money for you? The right money will fuel your business and the wrong one will penalize it. With the insecurity of the immediate future, it is key to be very selective with your funding options. If you don’t have a CFO, consider partnering with a funding expert to guide you through the various stages of your funding needs. This will ensure you always have access to the right capital for your business, not just what you think you can get.
Stay confident yet responsible and pragmatic. Onward.
Altima Business is membership-based on-demand consultancy firm founded by entrepreneurs whose jobs is to slay the dragons most business owners try to fight. Every day we work hard to move businesses from point A to point B.