Small Business Crisis Management

A Story About Surviving a Small Business Crisis

Forked Path Sizing Business

This small business crisis story comes from my days of owning a manufacturing company that was heavily reliant on the energy sector for its business. The price of oil plunged below $20/bbl in 1998 causing great stress on my business. It was not an easy process to make it through, but we did. What follows describes the steps I took to deal with the crisis.

Remain Calm and Find Peace

The stress brought on by this crisis was unsettling to say the least. Visions of going out of business went through my mind. I am a spiritual person. Even if I had to go out of business, I knew that was not the end of the world, but it would be a very painful process. However, I have an engineering background which taught me to think logically and find solutions to the problem.

Have a Full Understanding of the Financial Status

I had worked to have 3 to 6 months of operating capital in reserves. This bought me some time and cushioned the blow of the downturn to some degree.

I also had a deep understanding about my company’s financial status. I was always keenly aware of my cash balance, accounts payable and accounts receivable. I knew my monthly break-even point. Based on the work backlog, I could calculate gross margins, apply them to fixed costs and know how the months ahead would work out. It did not look good.

Difficult Decisions About Team Members

In a relative short amount of time, I let go of folks I employed through a staffing agency. That hurt and I felt bad. However, I reasoned that I utilized the staffing agency for the very purpose of flexibility. Surely the staffing agency could find these folks another assignment.

That left me with my core team members. The ones that had been with me for quite some time. They were knowledgeable and dedicated. Together, we watched the price of oil and were very hopeful the orders would start flowing in again. Some work did dribble in, but it wasn’t enough. We were losing money every month and the capital reserves were shrinking.

I finally had to make the decision to move to a 32-hour workweek. That hurt too. I knew my team members had families to support and I felt terrible. Of course, I cut my salary too. I reasoned that if I didn’t cut hours and payroll expenses, I would exhaust the reserve. We would go out of business and no one would have a job. We went for several months in a row losing money. Some months were close to break-even, others were nowhere near.

Diversify the Business

The big lesson for me was to diversify the business so that it was not so dependent on the energy sector. In the downturn, I went looking for business from other market sectors. That helped with some work dribbling in, but it was still quote based, build to print work.

Another part of the diversity equation was to develop some of our own products that could be marketed to other industry sectors. For some products, the consumer was the sector. Not all of the new products succeeded, but a few did and gave my business diversity and multiple sources of revenue. Some of these new products were joint ventures with people that had skills that I did not.

Developing new products and joint ventures can be a rather slow process, but can be very beneficial to the long-term success of a business. Expect some trial and error if you follow this path.

Oil and the energy sector eventually returned and then went down again, of course. In the next downturn my company was much better prepared. The capital reserves were back up and we had a much more diverse customer base. We continued to grow and diversify the customer base.

Surviving a crisis is not easy. There are gut-wrenching decisions to be made. A dedication to having operating capital in reserve and developing a diversified customer base is beneficial. Spiritual faith and a sense of peace is helpful to the process too.

For assistance with your business, please reach out to me.

Together, we can do this!