Council Post: Eight Steps For Small Businesses Responding To A Crisis

When leading a business, you must be prepared to be unprepared, especially when facing times of uncertainty. I believe the best way to navigate a crisis is to build good habits by studying history and fundamental business techniques.

As the CEO of an organization with multiple lines of business that range from fashion to real estate, I have developed strategies that have helped me navigate crises from the Great Recession, to natural disasters and now the coronavirus. I have drawn on the experiences of other great leaders, and below I’ve shared my playbook for how to operate a business when a crisis arises:

1. Remain calm.

During a crisis, you’re likely consuming a lot of information — whether from the news, employees, customers, vendors or friends. As a leader, clear, rational thinking is important. You might feel the weight of the world on your shoulders. Just remember to take things one step at a time. Focus on the facts, and don’t worry about what-ifs.

Then, make a bulleted list of what needs your attention. Start with between three and eight items so you don’t get overwhelmed, and check them off one at a time.

2. Develop a cash runway.

There is a saying in finance: “Revenue is vanity; profit is sanity, and cash is king.” I believe nothing makes that truer than when the revenue disappears or shrinks significantly. Whether you’re facing a natural disaster, economic downturn or a pandemic, get an understanding of where your cash is and how long it will last.

To start, check your bank account, and see what’s on hand. Find out if you have any outstanding checks, and subtract that from the total; this is your book balance. Keep this number in mind to develop your cash runway.

3. Assess your credit.

Now, it’s time to get a handle on your credit. Think about credit card bills, term loan payments and lines of credit. What’s due? What additional credit do you have available? If you are maxed out on credit from your lenders, you can consider looking for other sources of capital, but stay away from the gray market (like hard money lenders and loan sharks).

Another option could be using some of your cash to free up some credit; determine if this is right for you. And if you do have available credit, I consider a crisis to be the time to think about using it. Add that cash to your bank account, and save it.

4. Review essential spending.

When facing hardship, essential spending is also something to consider. Normally, you might have costs related to inventory, payroll, rent, professional services, vendors, etc. But during a crisis, “normal spending” stops. Ask yourself questions such as: What services are essential to keep the business running? Are there any payments that can be stopped or delayed? Make a list or print out your general ledger, and explain your reasoning behind your decisions to all affected parties.

Depending on the severity of the crisis, your key payees might be willing to help you cut costs or pause payments temporarily, especially if you are in good standing with them. However, understand some must be paid to keep the services going. Conserve cash, and negotiate the best you can to ensure you can keep your key services on.

5. Cut nonessential spending.

This can be extremely difficult to do, but cutting nonessential spending can help you be proactive in protecting your business. When you do make these changes, communicate immediately with the people affected. Let them know what you are doing and why you are doing it.

In a crisis, contracts and obligations might need to be revisited. If you have great relationships and treat your community of employees, vendors, landlords and service providers well, I’ve found they will likely understand your decision in the long run, especially if you are successful and get them back on the essential spending list once the crisis is over.

6. Address your team and community.

When facing times of uncertainty, let key stakeholders — such as your customers, vendors, service providers, landlords, etc. — know you are ready, willing and able to confront the challenge head-on. Open and honest communication with everyone involved is essential. Let them know why you are making the decisions you are; document and syndicate your message, and keep repeating it.

Just as important is staying in front of your team. Check in on your employees and colleagues. Share important information openly and honestly. Never operate in the gray. Deliver the information exactly as it is with empathy and confidence.

7. Use your resources.

Once you have your finances in order and you have communicated with your team and community, it’s time to assess the resources you have at your disposal. Get creative, and leave your comfort zone. It’s OK to ask for help if you need it. If you have been in business for years and created good will in your community, then there is likely a deep well you can tap into. Day one is the hardest, and it likely feels as if there is a mountain ahead of you. Remember to keep a to-do list by your side, and knock off tasks one at a time.

8. Inspire confidence.

When facing hardship, you might feel like giving up, but stay in the fight as long as you can. Hold yourself accountable for the things you can control, and try not to stress about the things you can’t. It’s not easy, but I believe a crisis can make organizations stronger. They expose your weaknesses, which you can ultimately improve. As a result, you can inspire confidence.

In summary, remain calm, and make a bulleted list of priorities. Get your finances in order, and communicate honestly and confidently with your community of stakeholders. Be creative, and remember that a crisis is a marathon, not a sprint. Take things day by day, and show your team that you and your company are remaining strong.