August 7, 2012 Money en_US 6 Tips for Managing a Small-Business Crisis

6 Tips for Managing a Small-Business Crisis

By QuickBooks August 7, 2012

Serious illness or injury, death, divorce, theft, a natural disaster, or the loss of a major customer can wreak havoc on a small business — and that’s not even a complete list of circumstances with the potential to cause trouble.

Corporate crisis manager Nat Wasserstein, of Linwood Associates, notes that whatever a small business’s crisis may be, it usually results in financial distress. This often turns into its own crisis, including issues such as being unable to make payroll or losing a much-needed line of credit.

Knowing what steps you’ll take to solve problems if and when they arise can go a long way toward saving your company, Wasserstein adds. He offers these six tips for managing a small-business crisis:

  1. Eliminate emotion. When faced with a crisis that could ruin their business, many owners go through some version of the psychological stages of grief, Wasserstein says. This is understandable but ultimately counterproductive: People almost never make good decisions when they’re angry or depressed. Once they’ve regained their objectivity, they can take action to save or reinvent their business, he says.
  2. Breathe. The first step toward smart decision-making in distress is “to breathe,” Wasserstein says. “You’ve got to be calm and relaxed and [remember] that this is just a business.”
  3. Stop the bleeding. “The whole goal [in a crisis situation] is to come up with a turnaround plan,” Wasserstein says. To create one, you need to identify your “cash bleeds” — those areas where your business is losing money — and stop them as soon as possible. That might include things like getting rid of products that no longer turn a profit, even if you’ve offered them for a long time. “If their margins are so thin, chances are they’re not making money — and if they’re not making money, they’re bleeding cash,” he says.
  4. Get help. The ability to set aside ego and other considerations to find outside help can be crucial for business owners who lack the right skill set for managing a crisis. “Sometimes the owner can’t do this [alone]. It’s triage, and they’re not built to do it,” Wasserstein says. “They’re not going to fire friends and family. They’re not going to have [difficult] conversations with customers and vendors. Sometimes they need a professional to ‘block’ for them and have the confidence that they don’t have.”
  5. Implement the plan. A strong plan lays out the critical objectives for turning around the business, the paths and timelines to reaching those goals, and the people who are responsible for executing them. “It’s almost like a battle plan,” Wasserstein says.
  6. Save part of the business. A key reason some businesses fail after a serious crisis, according to Wasserstein, is that the owner takes an all-or-nothing approach when a compromise could have saved the company. Being willing to scale back today can ensure there’s still a business to run tomorrow. Maybe your very troubled $10 million operation could be a very profitable $2 million one? That might seem like a devastating loss on paper, but it could mean your business survives and thrives after challenging times. “It changed dramatically, but you’re making money, you’re strong enough to grow, and you’ve got a strong balance sheet,” Wasserstein says.

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