A business owner's guide to navigating uncertainty

With increased stock-market volatility, inflation, and geopolitical tensions driven by a potential trade war, you may be looking for way to fortify your business from these outside influences. While the strategies discussed here are not just for times of uncertainty, they do provide a good opportunity to revisit and double-down on these important business practices. 

1. Know where your business stands

• Have strong accounting practices. Managing liquidity and cash flow is critical during times of uncertainty. Have a strong process for tracking cash coming in and out of the business. This may include having accounting software you can use, an internal accountant, or an external CPA firm. This step can also help when applying for loans or in an eventual exit of the business.
• Understand your liquidity. Know how much cash you have on hand and any expenses or other required payments, such as debt payments, coming in the next 30, 60 and 90 days. Pay particular attention to any loans coming due within the next few months that have balloon payments and start making a plan to refinance them. Calculate "days cash on hand." Simply put, this is how many days' worth of expenses the business could cover with its existing cash. Finally, take stock of your available sources of liquidity, such as lines of credit, and maintain open lines of communication with your lenders.

2. Fortify your balance sheet

• Identify discretionary expenses. Review your planned expenses and determine if they are necessary for the ongoing operations of the company. Consider delaying or canceling these expenses to help maintain operating profits and improve liquidity. Look for expenses that may be outsourced to a third-party vendor more cheaply or more efficiently.
• Consider capital assets and expenditures. If you're planning to invest in new equipment or real estate in the near term, reconsider the pros and cons of making the investment now. It may be a strategic imperative and necessary for the continued success of the business, but it can also reduce cash on hand and/or increase future debt payments.

3. Revisit your product and pricing strategy

• Know your customer. Customers are willing to accept price increases on some products but not others. This is often dictated by the availability of substitute products and whether the product is discretionary. This may allow you to pass rising costs to your customer to maintain your margins.
• Review your product mix. Determine if there are near-term changes you can make to your product offering. This may include reducing or eliminating low-margin products to better deploy capital or introducing new products that may help defend market share.

4. Consider strategic opportunities

• Acquire assets at suppressed valuations. Times of uncertainty usually present opportunities to buy assets at attractive valuations. If you find yourself in the position of having relatively low debt and high cash, you may be able to strategically invest in the future success of the business.
• Consider M&A opportunities. Down markets may provide the opportunity to acquire competitors, suppliers, or complementary products at discounted valuations. The additional scale and diverse revenue streams can help the business better weather uncertainty and provide a higher valuation for the business in the long run.

5. Review your financial strategy

• Derisk your business and personal financial strategy. Consider ways to derisk your business and by extension your personal financial strategy, such as a buy-sell agreement. This can help provide you a more secure future, but it can also increase the value of the business.
• Consider saving outside the business. If you have excess cash flow, consider saving outside the business in an employer-sponsored retirement plan. This can help reduce current taxes, improve your financial security, and attract and retain employees.
• Align your personal, financial and business goals. Create a robust picture of what you want for you and your business' future. Understand the role you want your business to play in your life and the lives of your loved ones. A financial advisor can help thoughtfully integrate these things into your financial strategy.

Zach Gildehaus, CFA®, CFP®, CEPA – Strategist, Business Owner Advice & Guidance