Change is inevitable, and as a small business owner, you must be ready to navigate through unexpected challenges. The “gurus” in the world are debating the likelihood of a recession. In 2016, I had a recession – I faced a significant revenue drop in my company due to the economic shutdown of the energy industries in Wyoming. 70% of my recurring revenue vanished within just three months. This experience brought the concept of the “Death Line” into sharp focus for me.
Jim Collins, in his book Great By Choice, emphasizes the importance of leading above the Death Line, both during good times and bad. Hitting the Death Line means the enterprise either dies outright or suffers such severe damage that it can no longer pursue its quest to become a great and enduring company. Reality dictates that bad events will happen, whether in our lives or our small businesses. The key is to take action to prevent hitting the Death Line.
A strong foundation for your business is crucial, as it prepares you to weather sudden and massive changes. Here are some steps to build that foundation:
1. Analyze and Adapt Quickly: Assess your business’s size and current revenue and determine how swiftly you can change course within your limitations.
2. Evaluate Your Financial Reserves: Consider the cash you have available and establish a financial boundary you’re unwilling to cross.
3. Rejuvenate Your Products and Services: Take a hard look at your offerings. Are they becoming obsolete? Identify ways to revitalize and reconnect with your customers.
4. Cut Unnecessary Costs: Dive deep into your expenses and eliminate unnecessary spending. Developing a budget is crucial, especially if you haven’t had one before.
The fourth point might seem challenging, but I’m here to help you with that aspect. Pruning back expenses when it’s pouring rain requires decisive action. We must make controlled cost cuts, aligning with the changing realities of the business. At iCFO, we’ve developed an ideal Budget to assist you with this process. You can find it at [insert link]. This tool will help you understand your business’s cost structure and make informed decisions.
By going through this exercise, you gain insights into the financial aspects of providing your product or service to your customers. It offers a farsighted approach to keep you above the Death Line and provides a buffer against stress and time restrictions. This exercise is invaluable, whether you feel your company is near the Death Line or you simply want to strengthen your business’s financial position.Remember, while not everything is within our control, proactive measures can help us navigate through uncertainties. Take charge of your business’s financial health today, and be prepared for whatever challenges the future may hold.