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Protecting Your Financial Future:
8 Steps You Need to Take to Strengthen Your Business in Uncertain Times


There is much about our economic future that we don’t know, and that neither you nor I can predict. So let’s focus instead on what we know for certain – and how you can use this information to bolster your business today.

First, we know that banks are in a period of reassessing their underwriting standards and terms, and access to credit will likely remain tight for the foreseeable future.

Second, we know that prices for everything from general inventories to residential property to new vehicles are falling. That, along with efforts by many financial institutions to preserve capital, can be expected to limit economic growth.

Finally, we know that the traditional mechanisms many companies have relied upon to monitor risk haven’t been working as well as they were intended.

Given these realities, there are things every business can – and should – be doing right now to protect its financial integrity and strengthen its operations for when times are better and our economy begins another cycle of expansion.

To Prepare for a Tight Credit Market

  • Give your company a stress test. Now is the time to jump on the financial treadmill and test your fiscal fitness. The best way is by assessing your liquidity and profitability under a variety of scenarios. Consider both situations that have a reasonable likelihood of occurring (i.e., declining sales, loss of a key customer or tighter margins), as well as those that are less likely to happen (i.e., a flood or loss of a key supplier). While you’re at it, test to see what happens with each scenario should you be unable to fully access your existing sources of credit. And then begin making plans for strengthening the weak links you discover.
  • Talk to your banker sooner, rather than later. This is especially true if your company “stress test” uncovers an unexpected surprise, potential cash flow constriction or a difficulty in adhering to financial covenants. Keep in mind, banks will be taking a harder look at your books this time around, even if you’re just interested in renewing existing credit facilities. So it’s better to have these conversations while your company is healthy. If you suspect you may have issues that may make credit renewal difficult, resist the urge to wait. Schedule an appointment now.
  • Batten down the hatches. When the economy is healthy and growing, it’s easy for expenses to increase without realizing their full impact on your cost structure and bottom line. Many businesses don’t watch every nickel and dime coming or going out the door, but now is the time to take a closer look at your working capital, making sure your dollars are working as hard for you as possible. Look at your investments and your cash on hand: Do you have enough reserves for a “rainy day”? Are they invested in the vehicle that will deliver the greatest return and remain safe, secure and accessible? If you have a line of credit, is it committed and available? By asking these questions you are ensuring your business can meet its cash flow needs today and tomorrow.

To Address Asset Price Deflation

  • Prepare for the worst. While many economists are predicting a lengthy recession, most are not suggesting that “the worst” is going to happen. But in your forecasting and planning, this is not the time to be overly optimistic. Instead, examine worst-case scenarios for your business plan’s most critical drivers. For retail businesses, that may be holiday sales. For manufacturers, it may be key raw material procurement contracts or energy costs. If you haven’t already, begin discussing with your management team “what would we do if ________ happened?” This will help you stay in front of whatever the economy throws your way.
  • Keep your eyes open for opportunity. This may seem like no time to go on a shopping spree, but if a competitor or a supplier is in trouble, you may be able to purchase long-desired assets at a discount. Be aware, too, that there may also be a glut of great talent available. Develop a shopping list of needs, and be open minded when reviewing resumes. We live in a fluid time when you might discover the “deal of lifetime.” You don’t want to miss it.

To Monitor Risk

  • Become your own best detective. With credit markets tightening, more customers and suppliers will struggle to pay their bills. A smart business will become even more vigilant in working with its debtors. If you have no formal credit approval policy and payment collection system, now is the time to create one. Work with your accountant to identify ways to determine which customers are credit worthy and which are not. Remind customers of the terms they agreed to, and perform regular follow up to remain high on their bill-paying list. To further speed the collection process, consider automating the collection of your payments through a lockbox with your bank. By letting your bank manage payments, you can help ensure your customers' funds are deposited on the same day they’re received, improving your cash flow, decreasing interest expense and increasing funds available to use in your operations.
  • Protect against fraud. It’s a fact: accounting irregularities, identity theft and outright fraud increase during economic downturns. Sometimes, too, those committing these actions aren’t outside your company but, unfortunately, on your payroll. To stop the problem before it can start, you’ll want to adopt stronger internal controls and separate duties amongst those with access to monies. Your bank, again, can help with a host of fraud prevention tools. Positive pay, for example, allows your bank to electronically match checks presented for payment with your check register – making it harder for fraud to occur and quicker to catch if it should arise.
  • Start at the top. It’s not just the Accounting Department that must manage risks. Risk mitigation must start at the top and be integrated into all key businesses processes – from purchasing, to marketing to project management. If you can lock in prices on raw materials now, for example, you may be able to hedge against spikes down the road. And your leaders can’t just talk the talk the talk; they must also walk the walk, rewarding employees who foresee and avoid risk, and making it a priority at every layer of the organization.
Regardless of economic climate the future is always hard to predict and foresee; economies move in cycles and bad times are always followed by better times. The good news is – and there is a silver lining even in this dark cloud – taking the proper steps now can make your company stronger for when the next economic expansion begins.

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