We’re all familiar with the phrase “save for a rainy day”, which basically cautions us to reserve capital for some future, as-yet-unknown, need. While many businesses do have some cash reserves, they don’t always have the amount they need, or access to that cash as quickly as they might need it.
What many businesses don’t realize is that the needs, or disruptions, come in all shapes and sizes and with varying degrees of impact and longevity. Some of these disruptions are predictable, as they take time to develop. Some come without warning and, seemingly, when you are least prepared. But there are ways you can prepare financially. A little preparation can go a long way.
Preparing for Business Disruption
Being financially prepared doesn’t necessarily mean having a bunch of cash just sitting in the bank. It can simply mean having a relationship with a financial institution that understands your business, your equipment and the situation in front of you. Small businesses often struggle to get equipment financing or a working capital loan because:
- Bank or financial institution doesn’t understand the business and isn’t willing to take a risk on something they don’t understand
- Lack of relationship between the business and the bank – they don’t know how you do business and don’t know your character
Some banks or financial institutions don’t get to know you and your business. They only see the financial information, credit score and other numbers, but they don’t really understand your business motivation, the type of work you do or the equipment you own.
We recommend having at least one financial partner that understands the ins and outs of your business, its cyclicality, the equipment you use and the customers you serve. This is the type of finance provider that is most likely to have your back when you get in a bind or find a great opportunity - because disruptions don’t have to be negative in nature.
Whether a disruption is positive or negative, it helps to have a financial partner in your corner that will listen to your situation and swiftly work with you to mitigate it or take advantage of it. Disruptive times are not when you want to be searching for a new lending partner.
Causes of business disruption include:
- Business Opportunities
- Weather and Seasonality
- Legal &/or Legislative Regulations
- Personnel and Customer Issues
Disruptive Technology, Innovation & Business Opportunities- Disruption isn’t Always a Bad Thing
Disruption isn’t always negative. There are times when a good opportunity presents itself, and a company just doesn’t have the financial stability or resources to take advantage of it. Think about a competitor acquisition, for example. A local competitive business decides to sell, and almost overnight you could double your revenue. But if you don’t have the funds or can’t get a loan to make the purchase, another business could make the acquisition, thus limiting your opportunity for growth.
Technology can also be a positive disruption. New equipment innovations, business systems and other forms of technology can positively impact business operations. If you don’t have the funds to take advantage of these new technologies, you could put yourself at a competitive disadvantage.
Seasonality and Economic Disruptions – Preparation for the Uncontrollable
Economic and weather-related disruptions are often unforeseen and difficult to plan for. The financial crisis of 2008 and 2009, while some would argue should have been evident, caught most people off-guard. Businesses collapsed, the labor market was in tatters and seemingly overnight, the credit markets dried up. This severely hampered many companies’ ability to access cash and credit to run their businesses.
Similarly, weather-related disasters could occur overnight, affecting your ability to complete projects in a timely manner and force you to incur expenses for labor and maintenance which you could not anticipate. Equipment can also be severely affected by adverse weather – hurricanes, floods, tornadoes.
Legal Regulations Can Cause Digital Disruption and Compliance Issues
Legal and/or legislative changes can bring a multitude of disruptions, but because legislative changes take time, many businesses have opportunity to prepare for them. For example, in the transportation sector, the recent ELD (electronic logging device) mandate required technology purchases and a change in the way hours of service are recorded. This mandate, for many companies, required software acquisition and the need to enhance training and compliance activities.
Legal disruptions can also include fines and lawsuits – either levied against your company, or brought by your company against another entity. Failure to comply with regulations can result in legal action against your company and many businesses don’t have the funds necessary to address such problems.
Personnel & Customer Issues – Internal Chaos and Challenges
Personnel changes can be extremely disruptive to the day-to-day operations of a business. Loss of key employees can have dramatic effect on customer and vendor relationships and the ability to conduct business in a “normal” fashion. Most companies can weather a personnel storm, but it helps to have crisis planning in place should key people exit the company.
Similarly, the loss of a key customer could cause significant disruptions. Loss of revenue is a concern, but what if you are stuck with inventory or work-in-process that you can no longer sell? Diversification of your customer base helps mitigate the loss of one or a few customers, but crisis planning can again help you be prepared.
Finding the Right Financial Partner
Throughout the life of any business, there will be challenges and opportunities. Planning and preparation can help you withstand the challenges and leverage the opportunities. Having the right financial partner is part of that preparation. CCG knows your business, can quickly assess your situation and help you prepare for what lies ahead. Let us know how we can help.