Businesses go through crises all the time. Right now, in 2020, a LOT of businesses are in crisis mode. If you've been in a crisis, or anticipate one around the corner, this post will help you to prepare for it so that your business can make it through and, potentially, come out the other side even stronger.
What's the worst that can happen?
This is not a statement of nonchalance to brush the seriousness of the situation aside. It’s a real question and an important one to ask yourself: what is the worst-case scenario here? What would your situation look like if you lost 80% of your revenue? Can your business survive it? Can you survive it? Run through a few different scenarios of what could happen if nothing goes right to find your real ‘worst-case scenario’.
Here are some questions that you can mull over to explore the real 'worst-case' scenarios you could potentially have to face:
- What happens if your largest client leaves?
- What happens if MOST of your clients leave or can't pay?
- What happens if ALL of the leads in your sales pipe dry up?
- What happens if your entire industry gets flipped on its head and you can't operate for some time (due to a pandemic, a change in laws and regulations, changing technology, etc.)?
- What if you get hit with a surprise bill that wipes out your savings or requires more money than you can currently afford to pay?
- What if you have to do layoffs?
- What if you have to sell assets?
When you do this, you should be scared as hell and will likely be in a panicky fight-or-flight mode. This is good. Now that you’ve hit the freak out stage you can move past it and shift your brainwaves into solution mode.
Take that worst-case scenario and make a plan for it. Put a plan in place where even if you lose 80% of your revenue, you can still survive. This is your crisis plan. Once you have that in place, share it with your team so you can execute on it and get to work.
If it makes you want to puke, you're doing it right
As the CEO/owner-operator it's your job to be optimistic, find opportunity and keep your team focused on their goals. Taking off that 'face of the company' mask to dig into these questions can be very difficult but is very important. If your 'worst-case scenario' gives you the sweats, leaves a hollow pit in your stomach, or induces a headache, you're doing it right. If it doesn't trigger any of these and leaves you mildly uncomfortable but still optimistic, find the person on your leadership team who has a track record of challenging ideas and opinions and ask them to join you in this exercise.
You've worked hard to build your company. Having to lay people off and downsize can make you feel like a 'failure'. You need to push that aside and focus on what happens next so that your company can survive this.
Assume a revenue loss of 80%
What happens to your company, and to you, if you had a revenue loss of 80%? Really think about it and write it down. What operations or departments would need to shut down? Who would need to be let go? What assets would need to be sold? If your business could not survive this impact, that's important to know too. As a business owner, you need to know your minimum operating threshold – that baseline of the lowest you can go and continue to operate – so that you can make that call when you get there.
Identifying that breaking point now, while you're clear headed and free from the emotional burden, will help you make the right decisions if your worst-case scenario becomes a reality.
5 Steps to Crisis Management Planning
- Crisis Org Chart
- Revise Your Budget
- Conserve Cash
- Business as Usual
Building a Crisis Org Chart (reverse Accountability Chart)
What does your org chart need to look like for a 10/20/30/40/50% drop in revenue?
The Accountability Chart (aka Org Chart) is how we structure the organization with roles and responsibilities and put all the right people in the right seats. Under normal circumstances, the Accountability Chart includes identifying empty seats in the business to facilitate growth. The Reverse Accountability Chart is the exact opposite, identifying seats that can be removed to facilitate business continuity.
If you have a 10% drop in revenue do you need to make any staffing changes? You might not. But when you have 20-30% revenue loss, you might. At 50% you might need a full restructure. This is the premise of a "reverse accountability chart".
What you need to do now, when you have a clear head and don't actually need to let anyone go, is to map out who would be the clear candidate for a layoff at each stage of revenue loss. Creating different org charts for 10% loss increments can help clarify a few things for you:
- Who are the key players that you'd need to keep no matter what? You need to make those people your priority now so you don't lose them later.
- Who seems to be expendable at any stage? You can likely let them go early to save yourself some expenses.
- What can be outsourced vs. what needs to be done in-house?
- Do you have a layer of (middle) management that becomes redundant with other staffing changes?
- Do you have team members who might be OK with a layoff or pay decrease? Some people want/need the job security while others might be OK for a easy out to pursue other passions.
Revise your crisis budget
Update your forecasts with those staffing cuts in mind to see how your revised accountability charts would impact your overall budgets. Ideally, you should have made the right cuts that balance your expenses with your 'worst-case scenario' incomes.
You will also want look at other areas to cut that won’t have negative future impact: Review the tools you're paying for, any leases that could be let go without penalty, company perks, and other expenses that could be cut (or just paused for now) to help you get through. Many companies struggle the most – and have to close – when they're out of cash. You need to revise your budget so that you're not putting yourself in the predicament where you're going to run out of cash too quickly.
With these new crisis-scenario budgets you should have an idea of your different budget thresholds. If you do need to lay people off, you're going to be more confident that those hard decisions will help to ensure the continuity of the company.
Cash on hand is essential to help you weather the storm. I've heard it said that Bill Gates always kept one year's worth of operating expenses in the bank, just in case. I think it's safe to say that his business would have had a much easier time making it through a crisis than a business owner who only has a month or two – if that – available.
In the agency setting, fluctuations to revenue and expenses happen all the time with the loss of a key client, or addition of a needed team member. Knowing your margins and being prepared for those hits can help to soften the blow. This might mean that you need to let those with high cost rates go earlier on so you can keep people with better margins and reduce expenses, or it could mean that you need to outsource some work to a freelancer so you don't take on a new staff member that you might not be able to afford.
Here are a few things to consider to conserve cash when you're in a pinch:
- Revenue: are you charging appropriately and collecting money on time?
- Expenses: are you spending too much in areas that aren’t a wise or necessary investment?
- Cash on hand: have you adequately saved what you need to make it through some hard months?
- Agile finance management: do you know where you can make the biggest impact with the fewest adjustments?
- Without going into debt and accruing interest, are there any payments you can put off for now to help keep money in the bank?
Make a communications plan
Make a clear communications plan that details what you will say to your people and when. Write your script when you are level headed and clear. Everyone sinks to their lowest level of training in a crisis, including you.
Talk to your team, your customers and your clients. Let them know that you are completely prepared and they have nothing to worry about. Use your communication plan and stay focused.
Business as usual
It can be hard to operate "business as usual" when you know that it's not and it's only getting worse with each passing minute. As a leader, if you let yourself be sucked into the panic of the situation you're not going to be focusing on your vision, your mission, and your strategic goals. You need to keep focused on the future and keep your team aligned to get there. You CAN make it through this crisis.
Tips to keep focused when you're stressed AF.
- Stick to your strategic vision.
- Identify new opportunities in your niche.
- Prioritize issues as you normally would.
- Maintain your leadership meetings and keep your team aligned.
- Remember that a bad month, quarter, or year is part of the business cycle and prepare for more of them in the future.
You can make it through this, even if your business doesn't it. But with careful planning and a level head, you should both be fine. If you need someone to help you with your crisis management plan, contact us.
This post is part of a presentation on Scaling Down presented at Reach 2020. Check out the presentation here.