I was at a seminar one day and the speaker suggested that every business person should have a disaster plan. His example was a very successful and profitable company that worked exclusively for an equally successful fortune 500 company. Unfortunately the Fortune 500 company was Enron. Overnight the entire workload was gone as was the accounts receivable.
Make a disaster plan. What if your sales drop to 50% or even drop completely? What overhead can you shed quickly? If you rent how long the lease is and how can you break it without personal liability? If you own the building will you be able to sell or rent it quickly? When the financial market collapsed taking the housing market with it many home builders were stuck with too much inventory in residential land but also too much office space that the same financial crises devalued.
Look at your other large overhead items including payroll. What will it cost you to shed payroll? Will you need to pay severance, insurance, back vacation pay or other benefits?
Can the company be quickly moved to other products or services? Should you start to diversify into other areas to limit impact of the collapse of a single industry?
Can you use vender or investor financing of your inventory? Many home builders had investors hold land until they needed it for construction. They gave up some or all of the profit on the land but when the housing market collapsed the investors not the building company were stuck with the devalued inventory.
What is your personal liability if the wheels do fall off? Have you signed as personal guarantor on bank loans, vendor credit applications, or other financial documents? Can you remove those personal guarantees when everything is going smoothly? Make a list of all your personal guarantees to banks and venders. Look into getting those removed if possible.
Plan for disaster before it happens and hope you never need the plan.
Original Material (c) Thomas Robinson
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