The last recession has put almost all businesses to the test.
Some were hit really hard especially the hospitality and travel industries, along with brick and mortars. A few made some decent profit like pharmacy and home delivery services. But everyone else was partially hit or still struggles to make a living in these uncertain times.
I launched my agency during the great financial recession. While sales were terrible back then, starting from the ground was scalable and I wasn’t renting an expensive space and paying dozens of people while business was down.
One of the most operational lessons I had to learn the hard way four years later was when our largest client left us with “you delivered everything perfectly and we can afford to run on autopilot for a year and then retire.“
Let’s sit down and think through the 15 questions you need to answer and reflect on to ensure that your business is safe.
1. Are My Margins Healthy?
It’s truly important to start with the most obvious fact. If your margins won’t let you grow further, you won’t get too far.
Additionally, margins are often formed by economies of scale. Whenever you’re able to scale up and produce a higher volume of whatever time, resources, or products, you tend to get certain discounts and be able to provide a competitive rate or a final price.
If you’re unable to hit your quota now during COVID-19, it’s likely that you would incur additional costs in terms of overhead, available resources, or other factors contributing to the lower margins. This is why it’s important to validate them. Do you generate a solid profit on every purchase? Is there a way to squeeze it any better?
Check your financial reports for your latest sales of your product or services, and make sure your margins are something worth investing in. It may be better to work with fewer clients or sell fewer products but generate a healthy margin that wants to get you out of business, especially in times of a pandemic.
2. What’s My Average Monthly/Quarterly Profit?
For some, recurring revenue is fairly static on a month-to-month basis, but maintenance or support businesses tend to be like this.
Other companies offering retainer services or gym memberships also tend to charge on a monthly basis. However, if you sell one-off projects, or if you rely on seasonality, it’s probably harder to measure the average monthly profit regardless of that fact.
You do incur monthly, quarterly and annual expenses. This may include salaries, rent, meals, and other fees. If you’re unable to sustain your annual budget and fiscal year on profit, you may want to revise the average monthly profit and what’s the best way to optimize accordingly.
3. How Overbooked Are Our Key Employees?
This could be revised in two different scenarios. On one hand, you don’t want to get your most senior staff members to suffer from burnout in a time of recession even if you’re close to breakeven.
It’s worth incurring some loss for a while, but free up some crucial time for brainstorming and business development strategic planning.
On the other hand, if it turns out that your key employees are pretty free, you probably haven’t invested in the right growth strategy. Make sure that your top team members are utilized properly – neither close to burnout nor underutilized and inefficient.
4. Is My Revenue Generating Channel Stable Enough?
I’ve met hundreds of business owners relying on any form of sales channel – from a marketplace, or selling arts to a specific media network or basically forming 80% plus of their revenue to a single channel.
The same goes for service agencies working with one large customer forming the vast majority of their revenue being there during the times of coronavirus. Make sure that your business is sustainable and your most significant revenue channels are intact.
Keep in mind that new opportunities were revealed for small and mid-sized businesses to ensure that new sales channels are available and the ability to connect businesses with vendors, quickly, especially in times of crisis. Everyone is trying to be creative one way or another.
Sometimes, it’s more cost-efficient to use a different marketplace over a different service or maybe bundle some products that go well together so that you can generate higher revenue on a per-customer basis during these times.
5. What Will Happen If We Lose 30% Revenue?
What will happen if you lose 30% of your revenue? Hopefully, you’re not there yet. But, a lot of businesses are. If you’re in a fairly good spot, consider what will happen if you lose 30% of your revenue.
Once you’ve done the math, you should be able to quickly answer what your margins and monthly profits look like. Ideally, your monthly profits are similar or close, if not higher than the aforementioned 30%. A lot of corporate enterprises, especially if you do your homework, are generating pretty low profit, anywhere from eight to 15% on an annual basis.
However, this number looks and varies differently. Small businesses need to be truly profitable in order to scale higher and create more sustainable business processes. Over time, they lose this profit by decreasing it in order to ensure the safety, stability, and scalability of the business. In any case, a 30% hit is extremely unpleasant but shouldn’t be the main factor to push a company out of business.
Make sure that your profits are solid and that you have a sufficient financial safety net to sustain a possible 30% hit. Again, in the best-case scenario, we would never have to deal with this. But it’s always important to have a contingency plan in place.
6. What If We Lose 66% Of Our Revenue?
This is crucial for every single business out there. This means filing for bankruptcy. It’s almost impossible to happen for a major Fortune 500 business, or the Facebook’s or the Google’s of the world, though their diversified revenue stream is structured in a way that almost immediately prevents them from losing that significant portion of their business. But, especially in times of crisis, terrible things happen.
Consider airlines, hotels, or restaurants. Many of them were closed for a couple of months or more. With that in mind, many of them were forced to close while others were able to operate at a loss and survive past pandemic times. And worst-case scenario, even if your business would not allow you to let go just a third of your revenue, consider what your extra business strategy is.
Can you go back to where you started and just get back to three or four or five years ago? Can you possibly switch to a consultancy model just to make sure you generate some profit on the site? Can you offer a different type of service that’s barely covering your expenses, but at least doesn’t generate loss?
Once again, it’s one of the worst things that could happen to a business, but having any contingency plan is better.
7. Can I Quickly Downscale And Survive?
Regardless of whether you’re in a position losing 20%, 30%, or 40% of your business, what can you do to make it? Large enterprises are nowadays going bankrupt. And the larger the business, the harder it is to be agile and flexible with legal regulations, syndicates, and other tax challenges.
Sometimes it’s extremely expensive to just go back and shrink your business in half. However, consider what you do first if needed. What lines of business would be cut first? Which team members should go first? What employee bonuses and extra perks are going to go first?
Create a couple of contingency plans. Write everything down. Consider salary decreases if needed and see what possible operational abilities you have in times of crisis. Sometimes, your employees may be worried as well about being able to provide them with the worst-case scenario plans. This is better than letting them wait every other morning, hoping that they still have jobs.
8. Can I Pivot Quickly And Test a Plan B?
Assuming that your industry may be going out of business, is there a way to use your extra time prior to this to test a plan B? Again, this could be a form of consultancy, or maybe switching fully to product, or turning to a maintenance life support business model.
If you’re selling products in the marketplace, consider a garage sale. If you have a quality assurance team, consider re-qualifying them into a different job that’s still in demand but they can retain their job and do something similar on a per-hour basis in the meantime if needed.
Consider leasing your staff members to outsourcing companies during a time of crisis to ensure you’re not left behind. It is the best-case scenario. Plan B experiments are most suitable. Whenever you’re in a good spot, not too overworked and having rough availability, but still being profitable. This is how lots of innovative business models and startups are born as well.
9. Do I Have Access to Business Loans And Lines of Credit?
Regardless of your safety net, it’s always best if you have negotiated some contracts, provided access to credit cards, or given lines of credit and business loans.
Sometimes it’s even safer to get a loan ahead of time before it’s too late.
Sure, there are fees and taxes and it’s generally more expensive than not. But if it’s something that would let you survive for a couple of months, and then slowly start to regain confidence and still retain your business. It may be something worth considering. The same goes for possible assets you may not necessarily need.
10. What Are 2 Untapped Niches We Can Focus On If Needed?
Some businesses that are thriving like offering services or selling products are in a fairly good spot. Can your business serve these two industries better? Can you shape some of your solutions so that they’re custom-tailored to those two industries?
You can identify other opportunities for markets that are in a good spot right now, and to ensure that over the next year or two. You have calibrated your service offerings toward a profitable business community. So be creative and put yourself in the spot of someone who can do either of the aforementioned should the doors of the business switch to an innovative business model for a profitable industry.
People get creative to get out of a rabbit hole.
11. Is Outbound Marketing Tested And Scalable?
I’m personally not a great proponent of cold calls and cold emailing. But in times of crisis, it’s important to have a way to generate leads on the fly without relying on your golden hand channels.
If your revenue generation relies on outbound sales, then great. If not, get a feel of the market landscape right now. You may actually be able to close a lead or two. If not, at least, it’s a good statistical exercise to figure out how many calls you need to get a sale going and also try to explore the most common objections your potential customers are citing whenever they decline, an offer.
You can also explore and join LinkedIn and Facebook groups. They are a great way to talk to your prospects, without being too salesy ahead of time. Trying advertisements with low-cost ads may also be a great way to generate some revenue right now.
You don’t want to pump all your budget and exhaust your safety net, but making sure that you understand which outbound channels can possibly work is important. And in terms of calling, you may get access to some salespeople who are out of a job now due to the crisis. So keep that in mind as well, maybe even on a freelance basis.
12. Do We Track The Most Crucial KPIs?
I had an interview last week for a marketing management job. The interview had to end sooner as the marketer wasn’t able to cite any KPI they were using at his current job despite the fact that he claimed to be managing businesses and running his own teams.
I couldn’t get any feel of what’s included on a weekly basis, what the KPIs are, and the expectations for successfully managing a marketing team. This is a red flag. And it’s hard to tell whether he has some flaws on the job, or the business has no expectation of revenue generation and profits whatsoever.
So regardless, make sure you’re able to answer these questions: What are the most crucial KPIs for every team? What makes the team successful? How do you know you’ve had a good week?
If you cite some accomplishments at the beginning of the month or the previous month, what did you use as the main metric? Figure out if you track your most crucial KPIs and ensure that you do. Talk to a qualified business consultant or conduct thorough research for the most important metrics that your industry tends to cover.
13. Can We Approach Former Clients?
We built our own CRM back in 2015 for many reasons but the leading one was simple. I needed an easy way to reach out to former clients who’ve worked with our business on seasonality.
It’s not necessarily a winter versus summer, but it’s more like common initiatives that tend to happen every two to three years. Building a web project may need a redesign or rebuild. A successful company may now need more enterprise integration with an LP or a CRM, a manager, or a director.
There are lots of reasons to reach out to previous customers, but more importantly, they are a lot more reliable than relying on outbound calls. And considering they had a great experience working with you, they may still be open to working with you now.
If you sold a product to 1000 people, consider if you have an add-on or another complementary product that would be useful to you. Set up an automated email campaign and make sure you offer them a decent discount. Being creative is great, especially if you keep track of your former leads or customers.
14. Is My Task Force Fully Efficient?
Investing in a great team requires a lot of commitment and determination. Having found top talent, it’s hard to say goodbye. But if you’re put to the wall, you have to choose. Close the business or cut down salaries up to 30% for everyone. Or, say goodbye to several people who aren’t fully efficient and needed right now. Another option is to revise your team now.
If you’ve already lost a portion of your business, you’re probably seeing some of your people slacking, not in a bad way. Figure out if you can re-qualify them, or invest the time if you still can to retrain them and increase their qualifications.
If things aren’t working out, try to find a way to point to several people who can find a better job elsewhere, or maybe have another alternative source of revenue. This is an important management call that you may need to do. And you better be prepared if the time comes.
15. Is My Leadership Team Ready to Conquer?
As an executive or senior manager, one of the most important things in times of crisis is making sure that your senior management team is ready to kick us in times of crisis.
Everyone needs to get creative. Everyone needs to grind. Everyone needs to invest in the future of the organization. Because it’s not just you, it’s not just the CEO, and it’s not just the CTO. It’s everyone, and everyone’s lives at stake. Closing a shop always leads to casualties. And the executive team or the leadership team working with you need to be fully aware of that. If they’re not, you may need to tackle this alone. And it’s hard so we need to prepare everyone mentally, physically, and emotionally for the battles if things go south.
At the end of the day, we need to remember that recessions are also seasonal. They tend to happen every eight to 12 years on average. Even if we weathered the storm or we were in for the long run, there would be changes inevitably, either locally or globally as irregular recessions.
So, if you plan to own your business for a decade or two, you’re probably going to struggle with a couple of major crises. What smart entrepreneurs and leaders do is getting ready for them and preparing the risk management strategies ahead of time.