Bernard Baruch, the famous financier, once said, “When business
is good for any period of time, eventually people come to
believe that business will always be good. When business is
poor for any period of time, people eventually come to believe
that business will always be poor. Neither is correct. Business
fluctuates.”
Run your business like a military force surrounded by the
enemy. Like Wellington, you should plan for eventual victory
but provide necessary reserves in case of unexpected reversals.
Protect your flanks. Take whatever steps are necessary to
assure the survival of your enterprise, no matter what happens.
Even when business is excellent, remain alert and prepared
for possible reversals or downturns. Business always
fluctuates.
Begin the process of securing your future by developing
accurate and conservative cash projections for the next six to
twelve months. How much do you have? How much will you
need? Develop high-, medium-, and low-range estimates of
sales, revenues, and profitability. Always ask, “What is the worst
possible thing that could happen financially in the coming
year?” Whatever it might be, provide reserves to guard against
any unexpected decline in sales and revenue.
Identify your key sources of sales, and your most important
customer groups. What are your best-selling products and services?
Who are the most important individuals or organizations
that buy from you? What can you do today to secure and protect
these sources of business? Never forget that the purpose of
a company is to create and keep a customer. You must pay as
much attention to keeping customers as you do to acquiring
them in the first place.
Think about your key sources of money and your most
important banking relationships. What would happen if your
lines of credit were cut off for any reason? What could you do
to guard against any problems with your bank?
When we were kids, there was a rule in our family: “Beat
the news home.” This meant that if you got into trouble in the
neighborhood or at school, you had to make sure that you
were the first person to tell your parents. Never let them find
out from someone else first.
The Principle of Security—Cover All Your Bases
In your business and personal life, this is an important rule
for dealing with your bank or any institution that supplies you
with money.
If there is a problem of any kind, “Beat the news
home.” Be the first one to tell them that there is a shortfall. The
most important rule in dealing with banks is: “No surprises!” Surprises
with regard to money are very seldom positive surprises.
How can you strengthen your banking and financial relationships?
How can you improve them? What alternatives do
you have if the worst should occur? Hope is not a strategy.
Remember that, “An ounce of prevention is better than a
pound of cure.”
Your business should be fully insured against every emergency
for which you cannot sit down and write a check.
Use a good insurance broker to help identify every business activity
in which you could be vulnerable to loss, litigation, or lawsuit
of any kind. With the tort system as out of control as it is today,
you must take every precaution. One of the smartest things
you can do is to purchase liability insurance to protect yourself
against someone claiming damage or injury from some
activity of your business or your staff. Fortunately, liability
insurance of this kind is relatively inexpensive.