Saturday, September 30, 2023

Asking to provide a way forward

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Shreya Christina
Shreya has been with for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

president of Fintrepid Solutionsan award-winning company that delivers tailored solutions to support business growth and sustainability.

Like it or not, as an entrepreneur you bought a ticket for a wild rollercoaster. The only constant in today’s economy is an abundance of information, often resulting in seemingly contradictory conclusions. More and more economists are pointing to a recession, and perhaps a steeper one, but small businesses are in many ways don’t slow down yet. It is critical to pay attention to both macro and microeconomic factors. But the challenge I hear from many CEOs is “how do I filter through all this noise?”

There is no mistaking the conflicting information and predictions about where we are and where we are going. We’ve heard about the “soft landing,” the “hard landing,” and other scenarios where the plane “stays in the air.” We also see conflicting thinking internally within companies, with CEOs, sales, operations, marketing and finance often having dramatically different views. For example, some companies have significant inventory levels. The sales team is very optimistic, they can sell their way to a more normal level. The finance department may worry about all the cash tied up and the inventories needing to be resold at discounted levels. Operations can struggle from a labor perspective to get the product out the door on time.

CEOs are left not only to resolve these internal differences, but also question whether they should hire more people and invest further or whether they should back out. Of course there is not one right answer. However, what is available to you are questions that can at least provide some clarity and a path forward.

How sustainable is your question?

I see companies seeing revenue increases, but volumes are generally flat or even down. What do volume trends do in general? What broader trends are there for your industry? Some small businesses lead, and some lag in terms of aggregate demand based on the pool of customers they serve. If your business is lagging, could public market data or anecdotal information from sources such as suppliers be a canary in the coal mine?

What investments are needed?

Do you need to make material investments in the business to support future operations, regardless of growth prospects? This can be in the form of real estate, equipment, systems or infrastructure. If so, what is the plan to allocate capital accordingly? As financing purchases, how important are rising interest rates? Capital intensive companies are struggling and the Fed is likely to continue to raise interest rates aggressively, adding to the pressure. What impact would a possible delay in these investments have?

How much influence do you have over your overhead?

This is a critical and often overlooked question. How much more revenue can the company generate without a material increase in overhead? This means that most of the gross margin generated on each future dollar will flow directly to earnings. Having leverage going into a recession is ideal because the company can control costs and easily scale as opportunities arise. A company at the other end of the scale may have to invest a little to grow further, which will result in declining profits in the short term.

Should you rethink cash reserves?

There may well be a reason to sit on larger reserves to help mitigate the impact of a recession and effectively insure yourself against some risks. On the other hand, it may also be time to have cash on hand to invest in assets and/or people so that you are in a position to roar out the other side of the cycle. Either way, the amount of cash a company needs is likely to be different from pre-pandemic or more recent levels. Think about how much cash your business needs.

Given these questions, the planning process takes on a completely different perspective. I suggest companies seriously consider three sets of financial plans this year: growth, slow/no growth, and decline. What are the key assumptions for each when it comes to your business? And that does not only apply to adjustments in sales levels. How would your expenses change? What is the impact on the balance sheet? What if customers pay more slowly and suppliers are less flexible? What must be true for the growth version to become a reality? The combination of logic and entrepreneurial spirit provides a powerful engine to give direction. Make the most of it.

I am cautiously optimistic about the road ahead for most of the country in the near term. Declines and disruptions always create opportunities. Being a constant student of business allows you to prepare for a wide range of scenarios with confidence. By seeing the possible outcomes, business owners and their teams are in a much better position to react nimbly, change course, slow down or speed up. That educated confidence in the face of uncertainty will make all the difference no matter what kind of slowdown we face. Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?


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