One lesson that I have learnt throughout my life is that, particularly in an economic downturn, there are no heroes, only survivors. How do survivors survive? They are always mindful and prepared for the worst, and they plan for survival early. Mr Inderjit Singh – The Art and Science of Entrepreneurship
Obstacles and downturns are inevitable; they are bound to happen sooner or later. Entrepreneurs need to accept this fact immediately and prepare themselves mentally for this. Having a plan when the worst-case scenario hits is useful because one can immediately execute the backup plan when failure occurs.
The reason to plan for a downturn in advance is to help prepare you mentally for it. If you try to plan and execute a survival plan at the same time, the chances for a successful execution is greatly diminished. The mind, when in a desperate state will never be capable of doing the planning and the execution almost simultaneously. Also when you have contingency plans in place, you are mentally prepared and are calm in case any calamity falls you. As you have played certain bad scenarios in your head, you are prepared for any bad things that may come.
But how does one behave during a downturn? What planning should be done?
In a downturn, the key thing to do is to survive – to keep the company afloat. It is also essential to have long term survival plan, in case the downturn lasts quite a while. Look to be conservative, spend less cash so that your cash flow keeps positive and you have enough capital to tide you over. You need to minimize cash drain and reduce as much costs as you can. Unless you have an abundance of cash, keep all your aggressive plays to a minimum. The less debts you have on hand the better.
In fact this should be a continuous strategy; performing housekeeping every few months will help you keep those unnecessary costs down and will keep your company streamlined. They key is to have as much positive cash flow as possible at any point of time.
Once the market starts to pick up and things get better, you can begin to be more aggressive with your moves. If you have been doing good business and have all your costs down, you may now have a certain surplus of cash. This can be extremely advantageous to business savvy entrepreneurs. In bad economies, many opportunities come on the table. There may be some competitors who are going out of business and if you have the cash, you could make some really good purchases that would help you expand your business.
Also if you have kept your company lean and clean you would be in a better position to capitalize on new customers. Where others are going out of business, you may be in a position to acquire more customers in your firm. Of course, this starts with a presumption that the entrepreneur will make good judgements. Those who make good judgements on when a downturn is about to occur and what opportunities to look out for can be very successful.
Most companies fail because they fail to plan for the worst-case scenario or because they do not have any contingency plans. When business is booming it is all good, but when the ship starts to sink then people start to panic and they make many mistakes that leads them to go down with the ship.
Whereas if you have done some planning ahead of time and have strengthened your foundation structure earlier, then there are better chances of you surviving a storm.
Do not forget this mantra of aiming high and being prepared for the worst. It will help entrepreneurs move along with great peace of mind and keep them prepared when they face bad scenarios.