Inflation remains elevated. Recession talk looms in headlines. Businesses and employees are worried. But the past few years have provided business owners with the lessons they need to prepare, says Amy Friedrich, president of Benefits and Protection at Principal®. These steps can help.
Establish a crisis plan. “Business owners—small business owners in particular—are so often absorbed in the moment because of the all-consuming nature of their work,” Friedrich says.
Take a minute to pause, she says. Ask yourself: What insights have I gained over the last few years, and what do I want to do differently moving forward? Would you:
- Set aside more money?
- Take care of your employees differently?
- Trust different sources of information?
One thing more than half of business owners do not plan to do? Reduce workplace benefits. This could serve you well for retaining your strongest talent when you need them the most. Perhaps most importantly: cultivate a support network to lean on when business is going well—and when things get bumpy.
Create a business succession plan. The first step to a successful business succession is answering the who, what, and when: Who do you want to sell your business to, what’s your business worth, and when do you want to sell? Set a realistic timeline and lock it into place through a well-funded buy-sell agreement. A solid agreement will:
- identify a buyer and fair price,
- outline the next generation of business management,
- protect employees, customers, suppliers, and creditors during the transition, and
- establish an accurate value for the business.
Get a business valuation regularly. This crucial number determines lines of credit, acceptable debt load, and even the timeline for selling your business. If a surprise event forces you to sell, you or your successors—or both—could end up frustrated if the value of the business is a shock.
“Knowing the value of the business is the foundation of planning,” says Nate Schelhaas, senior vice president of Benefits and Protection at Principal. “A business owner can have all kinds of great ideas, but they’re worthless if the owner can’t put solid numbers to what they really mean for both owner and buyer.”
Connect with a trusted financial professional. Businesses in nearly every industry rely on technical experts—CPA, attorneys, etc.—for essential functions. As you’re running your day-to-day business, a financial professional can offer support for long-term planning.
Build up cash reserves. Stockpiling cash in the boom years may help you avoid risking your personal finances. Nearly one-third of business owners have already set aside reserves in preparation for a potential recession, according to Principal research. The old rule of thumb was a six-month cushion. But the past few years have shown us that crises can last far longer than that.
“The worst-case scenario?” Schelhaas says. “You have a year’s worth of cash reserves and don’t need it.”
Our local Small Business Development Center can help with succession planning and valuation. Contact them at 620-341-5308 or visit them on the ESU campus at 1428 Merchant St. or find them online at https://www.emporia.edu/school-business/centers-resources/centers/small-business-development-center/.
“Let’s Talk Business” is a weekly column of the Emporia Area Chamber of Commerce and Visit Emporia. The mission of the Chamber is to be proactive in creating an environment for business and community success, guided by the vision that positive attitudes promote positive actions. Contact us at 620-342-1600 or chamber@emporiakschamber.org and visit our website at www.emporiakschamber.org.