As Pack Protocols is writing this, the business world is going through a crisis. People are contracting a human-to-human virus that can be deadly and no one is certain when or how it will come to an end. Without any workers, businesses of all sizes are struggling to make ends meet. Why?
Pack Protocols believes firms are struggling due to a culmination of events. First and foremost: “Nothing in life is guaranteed”. People and business may not be fans of metaphors, but this holds true. A good portion of business implicate profits as the key tenet driving business success. To some degree, this may or may not be valid.
The issue with solely making profit the pinnacle of success of a business is a misnomer. It is possible that a company is making a huge profit, but cannot pay their own debts (suppliers, employees, etc.). This does not make a company successful. The inverse can happen where a company’s profit may not be large yet they can pay off debt easily.
Many companies are burdened by CEO’s and investor’s pressures to produce results indicating infinite positive results. Profits are the main reason companies get caught up in a false reality.
In an ideal world this is overly optimistic. If discussing with someone with a finance expertise; most would say profits cannot increase infinitely. It does not matter the company. Decreases in profit or net income is a hard fact over any company life span. The mentality may come from individuals or firms who are not business savvy. Their first business education comes in the form of writing a business plan.
Devising business plans to gain funding for a company to grow involves lenders with strict criteria. The client is preferred to display an increase in profit over a five year time period. Most graphs submitted are positive linear or exponential relationships indicating an increase over time (See Figure 1). Yet, Figure 2 is reality.
When Figure 2 is pitched; the business may be scrutinized and face being rejected. Generally, the outcome for Figure 1 is positive compared to Figure 2 for lender approved business funding. This lesson may lead to a shift in business thinking where it does whatever it takes to show profit expansion. Pack Protocols has seen this practice transfer over into reports referring to “end of month”, “end of quarter”, and “end of year” data.
This outcome can result in a situation where firms embellish revenue and profit to improve their overall valuation or stock prices. The business could possibly shut down and its employees fined and imprisoned if this choice is made due to fraud.
A few tips to survive in a crisis:
- Companies need to be prepared for a long term crisis and have a plan when the next event will occur
Note: Key point made is that another event will occur.
Business owners and executives need to have the knowledge that preparedness goes beyond conducting company natural disaster drills (fire, earthquake, tsunami, and tornado). Larger companies may have financial scenario calculators or other tools that may be able to “predict” the outcome to future economies. Most do not have any strategies of what to do in a medical pandemic, long-term downturn, or catastrophe. Efforts by businesses to implement strategy have to be improved and need to be established regardless of size. It cannot be completely makeshift and needs a supporting foundation.
- Vital for firms to be aware, conscious, and disciplined of spending
“You have to spend money to make money” can only go so far. Companies cannot give employees or themselves blank checks. It is good for companies to have special reserves allocated for dire circumstances. The company would have to periodically set aside money for this measure. Reserves would be only touched in extreme situations and would be secure (non-volatile, insurance backed). If utilized, these reserves must be replenished.
- Business should be resourceful
Do not have tunnel vision and only evaluate standard solutions within your industry. Be open to other solutions outside of the company’s comfort zone and learning from others. Research and examine options before making a well thought decision. The outcome should be ethical, within your companies capabilities, and have the ability to be iterated as needed.
Want to learn more about us? Contact Pack Protocols at [email protected] or 657-204-6093.