The hurricane season is upon us. It would seem the government has learned a few things from past storms, such as Hurricanes Harvey, Irma, and Maria. Past mistakes can be very useful if we learn from them in terms of preparing for the future.
The business world has been hit by similar storms, sometimes with warnings and sometimes without. For a coatings contractor, the weather can take a drastic turn, causing business to be super busy one day but perhaps unexpectedly slow the next.
The general economy can rapidly change, causing people to feel good and, therefore, ready to spend more money than expected. On the flip side, when the economy turns sour, people hold on to their cash. A sudden change in interest rates, for example, can make borrowing more difficult and lead to unexpected cash flow issues. Smaller storms (e.g., rising medical insurance costs, a gasoline spike, or a shortage of available technicians just when business is picking up) can occur at any time.
The question is the same one the government faced: Are you prepared, and do you have a plan in place for the next storm that hits?
None of us can ever be totally prepared for every storm, but there are some logical steps that you can take to help prepare yourself should the storm come.
• Review your profits/losses (P/L) with your certified public accountant (CPA). Few small business owners meet with their CPA except at tax time. CPAs are trained for taxes, but good ones also have the ability to look at your numbers and offer helpful insights. Outside eyes often see things we don’t. Meet with your CPA within 15 days of the close of each month to review and analyze your numbers.
• Create cash reserves. Few things help you weather an unexpected storm more than cash in the bank. As a matter of fact, cash in the bank can also help you sleep well at night. Build a cash reserve dollar amount into your overhead and, therefore, into your pricing. Each month, take those dollars out and place them in a mutual fund or savings account. The goal is to have enough cash reserves to cover 3 to 6 months of fixed overhead costs.
• Pay off debts ASAP. Debts cause pressure on you and your family. Fixed debt payments are just that: “fixed.” If a storm were to come, those payments still have to be made. Take the pressure off yourself and the company, and accelerate debt repayment by building extra payments into your budget and into your pricing.
• Focus on your business. When a storm arrives, the tendency is to look and see what others are doing. This is wrong. You should be focusing on your business. Who cares what others are doing? You are only accountable for decisions you make concerning your business. Forget others and focus on what can be done to improve your situation.
• Minimize overhead costs. When sales are up year after year, the tendency is to spend more. Why not? You can afford it! That is a great theory…as long as sales continue to go up. Increasing sales tend to cover up a lot of problems. When things are good, that is the time to reduce overhead costs while you can. Review your total overhead, fixed, and variable costs with the entire management team and set goals in terms of reducing the cost of overhead before sales go down.
• Reward performances you want repeated. When storms come, retaining employees can often be difficult. One of the keys is to reward behavior you want repeated. That means setting specific productivity and profit goals for every position within the company. If the employee exceeds his or her goals, reward him or her for it. Most individuals will tend to meet, or exceed, goals when they are set and especially if there is a vested interest in doing so. Look at every position — from management to techs — and set performance goals. Measure the crew’s performance against those goals each month and reward those who hit or exceed them.
• Understand the business side of your business. Most companies that go out of business, storm or no storm, go out because leadership doesn’t understand the “business side” of their business. The tendency is to think that bringing in a lot of money “must” mean you are making a profit. That can be true, but it doesn’t always happen that way. Invest some time and money into learning the business side of your business, such as developing cash flow projections, setting up lines of credit, putting money aside for equipment replacement, and creating month-by-month cash flow budgets. If the storm comes, you will be prepared. If the storm does not come, you will simply make a bit more money than you would have otherwise.
One Step Closer
Weathering a storm requires planning and execution. Now’s the time to think seriously about these ways to prepare yourself. Try focusing on at least one of these areas and work to get it accomplished. That will bring you at least one step closer to weathering the next storm no matter when it might occur.
About the Author:
Tom Grandy has over 50 years of experience in industry and small business. He has worked as the general manager of a service company, is Regional Director of Company Development for the DIAL ONE franchise, and is the founder of Grandy & Associates. For more information, contact: Tom Grandy, TomGrandy@GrandyAssociates.com