Given the current financial crisis, I’ve decided to share my thoughts about how to best manage through turbulent times. The idea of “plan for the worst and hope for the best” isn’t new, but applying it isn’t always easy.
In times of crisis–either one of your own making or one based upon external conditions like a recession–you need to put together a plan that is a “worst-case” scenario. You have the obvious actions–cutting back your manageable expenses such as marketing and travel; rethinking new hires (since not hiring someone is infinitely easier than firing someone); and examining your current headcount with the thought of a layoff (RIF).
You must also develop a reduced sales forecast. Coming to an agreement on the revised sales forecast is often the most difficult part of putting together this plan. It is the most subjective element of the plan yet it can have the most widespread impact across the organization. A conservative sales forecast may result in the decision to take difficult steps (like laying off a great employee). It’s very easy to rationalize a higher sales forecast in order to avoid these painful decisions.
Speaking from personal experience, I want to share a “worst case scenario gone even worse” story. I was involved with a company 20 years ago that was really struggling, and the team put together a “worst case” plan. The VP of Sales continued to reduce his forecast because we wanted to be ultra conservative, and at the end, we decided to put together a plan with ZERO revenue for the period in question–truly the worst case, or so we thought. Guess what? It turned out that this wasn’t the worst case. We had some significant product returns during the timeframe, so our revenue was actually negative! The moral of this story is: In times of crisis, you need to be brutally realistic when you look at your alternatives and plan your cash flow. And I always counsel that people create pessimistic but not worst-case scenarios—there’s no such thing as the worst case because no way to tell just how bad things can get.