THE CRISIS YOU DIDN’T SEE COMING
By Lindsey Saletta, Chief Strategy Officer at SDC DESIGNS LLC
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LEADING THROUGH HELL. LESSONS FROM A FRACTIONAL FIXER ON HOW TO AVOID THE WORST PARTS OF A CRISIS.
“Do we have enough cash for payroll?” It’s a question reserved for the most intimate executive offices, and one we don’t talk about enough.
We like to talk about the good times in a company’s lifecycle – when sales rise, funding is released, we’re hiring, people are happy, life is good. It is nice to stay here and talk about all the smart decisions we made to be so successful.
Unfortunately, all businesses are cyclical. Focusing only on good times can leave us vulnerable to turns of fortune that jeopardize what we’ve built.
Companies frequently hire me when these downturns happen. Sales stagnated, debt accumulating, disintegrating supply chain, broken systems, and sometimes, actual fraud (and no, you won’t see these on my LinkedIn, not outing anyone here!). My job is to take the helm and right the ship – whether that means a rebrand, a restructure, or a complete rethinking of the way the business operates.
After over 10 years leading in these types of pressure cooker environments, I’ve identified a few clear steps that healthy businesses should take to help insulate themselves from crisis. In my experience, taking these steps can be the difference between a company hitting a speed bump, and running full speed into a brick wall.
KNOW YOUR CASH POSITION INSIDE AND OUT.
There are all kinds of truisms about cash (Cash is King. Business 101: Don’t Run Out of Cash), but in a world of accrual accounting, leverage, and aspirational marketing buys, it can be easy to lose sight of what is happening under the surface. Leaders need to know not only how much cash they have and how far it will get them in their current forecast, but where additional cash will come from if they miss that forecast. Know what kind of credit is available to you and build in a cushion – credit is always harder to get when you need it the most. Know where in your business you have cash tied up – in inventory or in other resources – and how long it would take you to convert that cash in a pinch. Have a plan in place, so when trouble comes you know exactly how to respond.
BUILD A TEAM PLAYER CULTURE FOUNDED ON DEEP TRUST AND HONESTY.
When the going gets hard, you need your people to lean in, not panic and bail. That means that they have to believe that you, the leader, has what it takes to get them through this. You build this kind of trust now, in the good times, by being honest, not overpromising, and doing what you say you’re going to do. It helps to have regular, in person exposure to team members through town halls or forums, so your people get used to hearing from you when there’s good news, not just bad. Then when a crisis comes, you already have the muscle memory and the infrastructure in place to get up and keep doing this. In rough waters, these simple things become astronomically harder.
TREAT YOUR VENDORS WELL.
In a pinch, your top vendors can be a critical lifeline, extending credit, working with you on price, or helping you manage a tough delivery. If you’ve built up a history of trust, paying on time, treating them with respect, and dealing fairly, they’re more likely to be open to doing you a solid. If you’ve been a penny-pinching jerk, they’re more likely to tell you to take a hike.
SET TRIP WIRES.
Constantly focusing on the worst case scenario is no way to stimulate growth – it’s easy to get caught up in preventing one scenario and suddenly find yourself in a different one that you didn’t anticipate! Instead of obsessing, set up systems that will alert you when certain thresholds are crossed – months of cash runway, EBIT percentage, revenue growth rate, qualified leads, inventory turn rate, whatever the key metrics are in your business. Know how long a threshold needs to be crossed in order for it to raise alarm bells. One day of decreased site traffic beyond the norm may not be a five alarm fire, a month of steadily declining conversion rates might be. Decide what metrics make sense and set up the alarm system – then go back to focusing on growth.
MANAGE YOUR COMMITMENTS.
The three things that are hardest to manage when cash gets tight are debt payments, payroll, and contractual commitments. During tough seasons, a business needs as much flexibility as possible, and high amounts of spend committed to these three categories can create exponential damage in tight spots. Overcommitment to debt is almost impossible to unwind when a business is challenged; payroll takes time to adjust and causes damage to employee lives and moral; and contractual commitments, especially to suppliers that have direct deposit, can take chunks out of a company bank account when you need them most. Act with caution when accumulating these kinds of commitments.
BONUS FOR ECOMMERCE BUSINESS- PAY YOUR SALES TAX ON TIME!
Many business leaders seem to think that deferring sales tax payments can be an easy way to keep cash in hand for the short term during a tough period. This is not only illegal, but if discovered, States can and do reach through and place liens on company bank accounts, effectively freezing accounts and creating another crisis! Don’t do this!
Taking these steps won’t prevent a twist of fate, but can give businesses and leaders the tools that they need to navigate a crisis more successfully.
Lindsey Saletta works behind the scenes at consumer brands to weather crises, generate new energy, and re-ignite growth. Typically contracted as a Fractional CEO, COO or Advisor, Saletta partners with founders and boards of businesses at an inflection point, where transformational change is required to unlock value. www.lcsleadershipsolutions.com
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