Founding partner of CEO Advisory Guru, LLC. Best-selling author of The Private Equity Playbook and The Exit-Strategy Playbook.
There’s no getting around it: The last few years have been tough for businesses around the globe. In 2020, we faced Covid-19 and worldwide lockdowns. In 2021, there were continued supply chain issues. Then 2022 was the year of inflation and massive layoffs. Now—only a few months into 2023—banks are failing, the markets are in turmoil and the threat of recession looms large on the horizon.
Tumultuous times like these can test you and your business. However, as I learned firsthand during my 21-year tenure as CEO for three national private-equity-backed companies—and as I continue to find in my current role as a CEO coach and public speaker—there are three steps every business owner can take, right now, to mitigate the negative impacts of a down economy. Let me explain.
1. Evaluate your banking relationships.
Most of us have heard about the recent failures of Silicon Valley Bank and Signature Bank. For many people, these closures are a source of deep and profound anxiety. As scary as they are, though, they’re also a perfect example of why it’s important to evaluate your banking institution. Not only do you need to consider whether it can weather economic storms, but you also need to evaluate whether or not it is the right fit for your business, both now and in the future.
To do this, ask yourself some questions. Can your bank quickly and effectively service all your needs as you continue to grow and scale? Are its financial products cost-effective? Does it have branches in the areas where you currently do business and in each of the markets you plan to expand into?
Along with questions like these, I suggest you also consider whether your bank has a commercial lending department. If so, can it offer you competitive terms on business loans? Finally, does it have the range of products and services necessary to enable you to handle both your personal and business banking needs?
If your current institution falls short in any of these areas, it may be time to seek a different one. After all, I’ve noticed that banks that meet these criteria often handle economic downturns better than banks that don’t. On top of that, working with a bank that can service all your needs as you expand makes it much easier (and often less expensive) to do business in different markets over the long term.
2. Invest behind the curve.
As the recent bank failures demonstrate, parts of the economy are sinking rapidly—and the chances for a broader slowdown are high. So, along with evaluating your financial institution, I also suggest beginning investing “behind the curve.”
What do I mean by that? Simple: Hoard your cash and reduce your expenses as much as possible, and only make investments at the end of each quarter after you know how well your business performed.
When the economy is on an upswing, businesses often make investments at the beginning of each quarter. They assume a certain amount of growth, and so they pour capital into things like people and equipment in order to service the expected increase in their revenue streams.
This works when things are booming. When times are uncertain, though, I’ve found it’s the wrong approach to take.
Right now, the smart move is to pull your investments out of your budget and put them aside. That’s what the companies whose boards I sit on have done, and it’s what I suggest others do, too. At the end of each quarter, review your company’s performance. Based on your KPIs, how strong do you expect your next quarter to be? By considering past performance and leading indicators, you can determine what investments you need to make to service revenue in your backlogs.
3. Define your KPIs.
Investing behind the curve is a crucial part of preparing your business for an economic downturn, but to do it effectively, you must know your KPIs. So, if you haven’t already, take the time to develop a set of leading indicators that will help you predict future revenue and future trouble spots.
Let me give you a real-life example of what I mean. Several years ago, I was the CEO of a large construction company. We developed a set of KPIs that allowed us to see what our revenue would be as far as six months into the future based on the number of jobs we won and the backlog we had.
When Covid hit in 2020, we were doing fine, but I knew—from monitoring our KPIs—that unless something changed, we would be in trouble in about six months. Armed with that knowledge, I was able to redirect our sales team to focus on different customer and project types. As a result, we continued to hit our revenue targets. Without those KPIs, though, we would have been blindsided.
Do you have KPIs? Do they allow you to predict what your revenue will look like over the next six to 12 months so you can adjust what you’re doing if necessary to plug any upcoming gaps? If the answer to these questions isn’t an immediate and resounding yes, it’s time to define your leading indicators—now.
Adapt to survive and thrive.
I have seen it time and again: These three steps—evaluating your financial relationships, avoiding overextension by investing behind the curve and making sure you have KPIs that allow you to predict future performance—are key to strengthening your business and keeping your revenue strong in uncertain times.
If you want more guidance on implementing these steps, you have a few options. Join a peer group and ask for advice. Reach out to other people in your industry and learn best practices from them. Or, if you want individualized support, you may want to consider hiring a coach to help you.
Bottom line: No matter which option you choose, by taking these steps, you can help ensure your business stays strong…no matter what challenges come your way.
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