NFIB

Lemons Into Lemonade? Proven Tips for Making the Most of a Crisis
08/ 23/ 2002

Crises come in countless forms: a large customer suddenly cancels a major order, leaving cash flow strapped; a natural disaster destroys offices or production facilities; a key employee leaves; a new competitor takes away a large percentage of business; theft or check fraud drains the company's resources; the company receives highly unfavorable publicity that undermines public trust...

There are so many different types of critical business situations that it is almost inevitable a small company will encounter one or more during its lifetime. In retrospect, a company may look back and realize that the handling of the crisis had a great impact on shaping the company and moving it forward. In today's Workshop, Jeffrey Moses presents a systematic approach to limiting the negative effects of a crisis--and perhaps even turning the crisis into an advantage.

1. Evaluate the financial difficulty imposed by the crisis.

If there is a direct financial loss--such as one caused by theft or fraud--cash flow may not be affected. But in almost all other types of crisis, cash flow could be disrupted. The maintenance of cash flow should be your No. 1 priority, but don't remove money from cash reserves until a revamped business plan to reestablish cash flow is in effect.

2. Contact all insurers regarding your losses.

Even if you don't think your losses will be covered, inform your agents. They may be able to offer suggestions.

3. Determine which bills or financial obligations need to be paid during the initial stages of the crisis, and put all others on hold.

Taxes, bank debt, employee salaries, key suppliers and utility bills must be paid on time. All other creditors and suppliers should be notified immediately of the crisis and informed that payment may be delayed. Don't make them come to you asking for payment. When a crisis occurs, you may be surprised how many organizations will work with you to ease your transition.

4. Let your employees know about the situation.

If layoffs will be required, try to give at least two-week notice. The remaining employees should be focused on solving problems and generating cash flow.

5. Examine the crisis with the purpose of removing or minimizing similar future situations.

For instance, set up policies to avoid future theft or check fraud; add coverage to insurance to cover potential similar losses; rework your long-term business plan to take new competitors or changing customer needs into account; avoid placing too much business with one or two large accounts.

6. Always look for ways to make the most of the crisis.

For example, reworking your business plan or internal operations may result in a lower cost structure, better sales and marketing procedures, a more dedicated and focused staff, or a more effective product list.

In the business world, there are countless examples of companies that turned lemons into lemonade. For instance, several years ago, the production facility of a machine shop in Kansas was destroyed by a tornado. Fortunately, the building and equipment were insured. After the claim had been paid, enterprising staff members were able to rebuild some of the machines from broken or mangled parts. And an advertising agency in Georgia emerged from check fraud with its financial reputation--and client list--even larger than before. During the crisis, the agency's marketing staff put in long hours and brought in new accounts using pricing incentives, thereby improving immediate cash flow and setting up long-term relations with new accounts.

Don't despair when crisis hits. Looking back, many successful companies think of their most difficult situations as defining moments and feel that without the pressure, they may not have become as successful.

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