Over a year ago, the COVID-19 pandemic hit us like a straight wind during a summer storm. At the time, businesses and society scrambled to make sense of supply and marketing chain disruptions, processor shutdowns, empty grocery store shelves, and consumers being limited in activity. These abrupt changes and uncertainty about the future led to a sense of desperation for many. Applications for stimulus checks, business assistance, and debt restructuring were the call to order. Many theme parks and roller coasters were also shut down and, even now, are operating at reduced capacity as a result of the pandemic. Operating a business on an economic roller coaster has provided some interesting twists and turns with a surprise around every corner.
Fast-forward to today and we are beginning to look in the rearview mirror with the apex of the financial roller coaster in sight. China’s demand for grains and proteins coupled with adverse weather in critical growing regions in the world and generous stimulus checks have resulted in some producers riding high concerning financial returns. With continued extreme weather, uncertainty in global trade, shifts in consumer demand, and new initiatives as a result of the green movement, the extreme highs and lows of the economic roller coaster could become the new norm. How can one manage business, finances, and personal behavior given the cards being dealt?
As many elite athletes will suggest, do not let the highs get you too high or the lows get you too low. Be as disciplined as possible and focus on managing the controllable and managing around the uncontrollable variables. Geopolitics, political agendas, and weather issues can be accentuated by social and mainstream media and are difficult to get your arms around. However, focusing on sound business principles is a high priority.
Allocate at least 5 to 10 percent of your time to planning. Conduct a SWOT analysis to identify the strengths, weaknesses, opportunities, and threats of your industry, business, and specific enterprises. Use a team of advisors during this process. Do not forget that an advisory team can be brought to your doorstep anyplace and anytime virtually through technology.
Like a star athlete mentally preparing for a game, do projections on paper to visualize potential outcomes. Develop a projected monthly cash flow outlining financial and production data, and then shock test scenarios to provide the boundaries of possibilities.
An economic roller coaster requires one to pivot quickly, which is why working capital that can be turned to cash will be your best friend. Liquidity also allows one to block adversity and to capitalize on opportunities.
Profitability is like oxygen for a business at the top of the economic roller coaster and it is often when the poorest decisions are made. Tap the “growth brakes” using the 60-30-10 Rule. Use 60 percent of profits to improve operational efficiency. Then, replenish working capital with 30 percent of profits. The remaining 10 percent is “house money” that you can use on different endeavors.
Finally, map out your journey. This requires one to be thinking about business transition. Investing in the next generation and seeking the right draft choices can be the difference that takes you from good to great.
Remember that both good and bad decisions compound over the business lifespan. However, roller coaster economics can accentuate the compounding effects of these decisions. This requires one to follow the process for financials, marketing, and risk management to become incrementally better and withstand the test of time.
