“Develop success from failures. Discouragement and failure are two of the surest stepping stones to success.”
Whether times are booming or challenging, there are always opportunities for ambitious people to move forward in the kitchen and bath industry.
While most owners want to discuss practical approaches to growing a business while it is doing well, the often neglected and equally crucial conversation is measured when a company is struggling. One of the essential things kitchen and bath firm owners can do when their business is in jeopardy is to remain in close contact with vendors to keep their good name intact.
Stay tight with vendors through good and bad times
While it may seem weak to admit your ailing operation to choice vendors, it’s a crucial move to make. Suppose you’re downsizing rather than going out of business. In that case, it may be tempting to hide this move from anyone who might raise an eyebrow at it until your firm has had another major success. You could pass off that downsizing as a strategic move when it no longer affects the appearance of your business.
Regardless of what your business’s bad news is, share it with those you’re in the habit of maintaining healthy lines of communication. Downsizing doesn’t have to be forever or even a long time. Still, it is something to share with your business partners and constituents as part of observing transparency in your operations. It’s a principle of keeping the lines of communication open.
Stay out of the doom loop
If your firm comes into financial trouble, contact your vendor credit manager promptly and avoid the unhappy fate of your vendor losing confidence in your firm. Be candid in disclosing the details of your business.
By initiating disclosure of your changes, you’re staying out of the doom loop, which ruins relationships with vendors. Most vendors will work with a communicative firm to arrange their payment at a time acceptable to the vendor and viable for the firm. Being forthright with vendors about the state of your business demonstrates leadership, confidence, and skill through the waters of tough times. You can always scale operations when times are booming again.
Protect your firm against failure
There are several measures owners can take to ensure their company doesn’t fail during difficult times. These measures are most effective when taken on promptly. Don’t wait for your business to be in peril to take action to protect it. These are preventive measures.
Backstopping. Once your operations are profitable, your next financial objective should be to build an emergency backstopping fund equal to at least six months of fixed overhead expenses, including your salary. Funds amounting to 12 months’ expenses are ideal. Make sure to keep your backstopping fund in a liquid portfolio so the assets can be converted to cash within a few days. Funds to backstop a business exclude real estate assets.
Three-month cash flow forecast – this is an owner’s most influential management tool during a recession. A cash flow forecast will outlay how and where your money should be directed when things are tight so that you don’t have overflow going into unneeded areas of your operations. Three-month cash flow forecasts should be updated weekly – even daily – as recessions become more severe.
Crisis managers recommend cash flow forecasts during recessions because they become the essential communication vehicle between your firm and your vendors. For example, updates can enable an owner to accurately project how long a regular payment may be delayed. This is a critical way to maintain trust with vendors.
If you extend the report to 12 months, you can use it to get bank loans because it demonstrates the adequate long-term activity of your business. Contact SEN if you need assistance in developing an accurate cash flow forecast.
—SEN Leadership Team
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