3 keys to planning for another economic downturn.
COVID-19 cases are rising again in the US, and states are reimposing stay at home orders and tightening up restrictions on businesses, public gatherings, and mask-wearing.
Even though vaccine trials are going well, business owners fear that a second (third? fourth?) wave of coronavirus will knock down companies that were just getting back on their feet.
The federal government will be tied up with the political drama of the election and subsequent transition of power. Another economic relief package may not happen for several months. That leaves many companies to weather a potential second economic crisis on their own.
Fortunately, many entrepreneurs have already done the hard work of “right-sizing” their businesses to stay profitable even as revenue has decreased. Some companies have developed new offerings or made short-term pivots to stay afloat. And most of us are in a cautious, more risk-averse mindset that’s helping us hold on to our cash.
But projections from our sources indicate that the economy won’t be fully back to normal until Q3 or Q4 of 2021. That’s still 12 months from today. If you’re wondering, “How long do I need to be able to wait it out?” you’re asking the wrong question. A year isn’t a “wait it out” situation: it’s a new normal.
So if you’ve been vamping and hoping for the best, if you know that another downturn could hit your company hard, it’s time to take action now. COVID-19 may have fooled us once, but this is a smart, savvy group of entrepreneurs, and we’re not going to be fooled twice.
COVID-19 may have fooled us once, but we’re not going to be fooled twice.
Here are three steps you can take TODAY to prep yourself for the next 12 months:
Run Financial Projections for Potential Downturns
You need to understand what your business looks like if things slow down a little—or come to a screeching halt.
Our friends at Freescale Coaching have put together a great framework for this financial mapping. They recommend running projections if revenue decreases by 10%, 25%, 50%, and even 100%. (Note that in order to run these projections, you need a basic model for your company’s finances to begin with. Contact us if you need help putting that model together.)
Once you plug those numbers into your financial model, the future will start to come into focus. Can you sustain your current team while losing 10% revenue? What changes do you need to make at 25% or 50% to stay profitable?
Identify which levers you can easily pull to decrease your costs. Building out these “what if” scenarios gives you the information you need to rightsize your business if that particular scenario occurs.
Bring your leadership team together and assess the company’s strengths, weaknesses, opportunities, and threats (SWOT). A thoughtful SWOT analysis allows you to:
(1) Recognize what activities are already bringing you success
(2) Call out where you’re underperforming or not getting traction
(3) Identify areas where you can lean in further or embrace a new approach
(4) Point to the places where you need to protect yourself or anticipate challenges
Prompts to initiate your SWOT analysis—make this a 2-3 hour offsite meeting with your leadership team.
P is for Pivot (and also Plan)
We’ve talked about pandemic pivots before. Some companies embraced a pivot in their business back in March. Others didn’t.
At its core, a pivot is an adjustment or modification to your current offerings to:
— add a new stream of revenue
— attract another or different audience
— sell more stuff
— improve client retention
— or otherwise increase revenue and profitability
If you’re planning for a not-quite-normal scenario until Q3 or Q4 of 2021, you need more than a scotch-tape and paperclips plan to stay afloat. You need annual goals built around the discoveries you make in your SWOT analysis.
What to Do in a True Worse-Case Scenario
A smart, dedicated, agile entrepreneur at the helm can keep most companies going during an economic downturn—most, but not all. Some companies won’t survive the pandemic. Perhaps your company doesn’t have any viable options for pivoting or you’re in an industry (hospitality, tourism) that’s been hit particularly hard.
If you’ve explored every possibility and don’t see a path to success, it’s possible there may not be one. In that case, remember that your business isn’t your life (it only feels that way). Cut back to the smallest possible version of your company, assume as little risk as possible, and spend more time playing with your kids or hiking in the woods.
That’s not a defeatist attitude, just a pragmatic one. This may be the season to focus on a better quality of life instead of a better business. Conserve your resources, save your energy, and step back into the ring when the time is right.
To sum it all up…
When you think about the next 12 months, plan for the worst and hope for the best. Run projections to get tangible data on what your company might look like with a 50% or more revenue drop. Perform a SWOT analysis with your leadership team. Identify pivots, if needed and if possible. And if not, take some time off and try to enjoy it.
Our COVID-19 Resource Playbook lays out a version of this process that may be helpful to you. If you need help with the financial models or identifying opportunities for your company, please reach out to us. We’re here to help first, and we’re confident that our team can give your company the support you need to navigate the next year.
Founder & President
Crews Consulting Group
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Skimmed it? Here’s the recap:
— Don’t count on government bailouts or a “ride out the storm” approach to COVID. Act now to prepare yourself in the event of a second economic downturn.
— Run financial projections based on revenue decreases (10%, 25%, 50%, 100%).
— Do a pandemic SWOT analysis.
— Identify one or more potential pivots and plan to adopt them for 12 months or more.
— If all else fails, cut back as much as possible in your business and focus on quality of life.