Following the events of September 11th, it has become even more
imperative for businesses to be able to adjust their operations to meet
the ever-changing conditions of the current financial environment. They
must also be prepared for either seasonal changes or unforeseen events
in our changing American economy.
In the past many family or closely held businesses grew steadily and
took a financially conservative approach in the day-to-day operation of
their business. Recent events, however, suggest the necessity of
implementing a more flexible and/or aggressive approach. This strategy
should include two types of financial plans. One, a
"fall-back'" position that has been scripted before the need
arises, could be implemented during seasonal financial downturns or in
the event of previously unforeseen situations such as the events of
September 11th. A second, aggressive plan should be formulated that
would allow the business to capitalize on an economic upswing or to take
advantage of short-term business opportunities. This plan would provide
for an infusion of capital and human resources as needed to take
advantage of the opportunities presented.
Why are such strategies necessary for a well-run business? Vast
reserves of capital are not usually available to finance downturns or
unforeseen events for an extended period of time. Therefore, the ability
to respond quickly to ever-changing economic conditions is essential.
To develop an aggressive or a fallback-operating plan, the business
must not be constricted by old operating paradigms. It must not be
resistant to change and it must not force current data into old
perceptions. It must be open to new ideas and look for new answers in
the data that is available. Relying on methods that have worked in the
past can't always solve new problems.
Knowing the business's current statistics such as its financial
ratios and how they compare to the industry standard is imperative. The
closely held business owner must also understand how his own business
differs from the industry as a whole. Often the uniqueness of a business
is what fuels its biggest opportunities.
When formulating a contingency plan, a closely held business should
focus on four major areas including organization and human resources;
systems and information; market niche and products; and finances. If any
one of these areas is weak or not well defined, that area should be
addressed and serve as a starting point for formulating the plan. Next a
budget should be developed that takes into consideration both the
business's minimum and maximum operating levels. It is important to know
exactly which costs are fixed and which are variable in order to
determine what changes can be made to decrease expenses in a fallback
position. Conversely, having this information immediately available
allows a business to capitalize on a profitable opportunity when it
arises.
These contingency plans enable the business owner to immediately
react to a changing business environment. By making necessary financial
adjustments and adapting to our country's changing economy, closely held
businesses can help keep America moving.
