Although I don't pretend to be a financial expert, I have disciplined myself to learn basic accounting principles. The more financial news and literature I read, the more I want to pound my head. Here's why:
The global economy remains shaky. The industrialized world, including the U.S., has taken on heavy debt. To maintain an affluent standard of living, many countries, states, cities, and households have borrowed heavily. Debt burdens and aging populations create pressures that are difficult to sustain over the long term.
Some economists argue that future growth will allow us to pay down obligations, as happened during past booms. Those conditions are not guaranteed to repeat soon, and relying solely on a future boom is risky planning.
I speak in front of many private company CEOs. Most are feeling uncertain, even those with positive cash flow. Collectively they are reluctant to deploy cash into new hires or capital spending right now.
You need to prepare your company and clients in case the economy drops by 10%, 15%, 20% or more. A downturn of that size is possible, and having a plan reduces risk and stress.
To help prepare you and your clients for a potential economic downturn, follow these guidelines:
Recommended actions
- Change all the time. Continuously ask how you differentiate from competitors. Remaining unchanged or ordinary will make it harder to survive a downturn; aim to appear progressive while offering stability.
- Generate a Plan B under which you can survive a 20% drop in revenue. Scale the plan for a 10%–40% drop. If you lack internal expertise to build cash-flow projections, hire a contractor to create realistic scenarios; knowing your options is worth the cost.
- Tighten up performance benchmarks to improve overall results. This is not the time to tolerate subpar performance due to tenure or personal relationships. Focus on measurable outcomes.
- Have your entire team watch The Accounting Game webinar on HR That Works. It’s a practical introduction to accounting concepts; also consider Brad Hams' Ownership Thinking for mindset and accountability.
- Conduct "what if..." workshops with your management team and employees. Collective brainstorming uncovers risks and practical contingency options.
The primary goal of risk management is preparation. Don't let comfort create vulnerability; have a clear plan to stay ready if economic conditions worsen.
For related coverage options you may review The Club Champion Package.
If you want help applying these steps to your business, talk to an agent.
Frequently Asked Questions
How do I start building a Plan B for revenue decline?
Begin with a simple cash-flow model showing revenues, fixed costs, and variable costs; then simulate declines of 10–40% to identify actions that preserve liquidity.
Who should create cash-flow projections if I lack the expertise?
Hire a qualified contractor or accountant to build realistic scenarios and stress tests; a modest fee can provide reassurance and actionable numbers.
What performance benchmarks should I tighten first?
Prioritize metrics tied to cash generation and customer retention, such as gross margin, days sales outstanding, and customer churn.
How often should we run "what if" workshops?
Run them at least quarterly or whenever leading indicators shift; frequent, focused sessions keep contingency plans practical and current.