What’s your plan B?

Jeffrey Scott

Every company owner needs a plan B — a contingency plan they can fall back on in times of need.

These plans, however, are often floating in the back of the owner’s mind, not written down and discussed with the team.

Now that we’re dealing with the COVID-19 crisis, everyone recognizes the need for a clear written plan put together with your team.

But what about the next storm? There are many crises you are likely to face in the lifetime of your business. Here’s a list of scenarios you should have contingency plans for. Which ones are you ready for?

A truck goes down. Most of you have an extra truck on hand and ways to get them serviced quickly. This one is a “duh.”

An employee doesn’t show. If you overhire in the spring and have utility players in place, you will do fine. Some managers will fill the void, but this situation causes its own domino reaction if you rely on it too often.

A large client quits. Contingency planning won’t solve this problem; it’s better to take preventive actions to avoid it altogether. Ideally, no single client should be larger than 5 percent of revenue, and no small group of clients should make up more than 25 percent. A large, profitable client can help you grow — but when they drop you or decide to go out for bid, Houston, you have a problem.

A key leader quits. Who can step in if a key person quits, gets hurt or dies? How quickly can you divide up tasks instead of waiting on a single replacement? Does that leader have an understudy that is waiting to step up — generally companies are unaware of the desires and potential of their benchwarmers.

Have a team discussion once a year about all key leaders and positions and make a plan for crosstraining and building the bench. Liabilities and lawsuits. There are so many types of problems you may encounter that it’s better to be safe than sorry by having the right insurances, legal entities and contracts in place.

The owner becomes indisposed. That’s a polite word for sickness or death. In that case, who has access to bank accounts, who is controlling cash, who is making key decisions? The owner should have a legal plan in place for business continuity and also a business plan in place for how the business will run in the interim. Don’t wait until you are old or sick to make a plan; be proactive and do all your employees a favor.

What about the black swan? A black swan is a metaphor for a highly improbable event that wreaks havoc when it hits. It is an “unknown” like COVID-19. You simply could not have predicted this virus outbreak. But you could have been prepared.

A preventive business plan includes the following:

1. A strong balance sheet (lots of cash, no bad debt and high utilization of equipment).
2. A mix of recurring services
   producing a high profit to balance your project work.
3. An A+ leadership team that works extremely well together.
4. A great relationship with your bank.
5. A habit of managing cash as if you always needed it, using a 13-week rolling cash flow projection, measuring operational cash flow as well as free cash flow.
6. A strong billing and collections process because cash is king.
7. A strong relationship with your clients and good systems to encourage communication and loyalty.
8. A clear scorecard with open-book management, at least with your executive team.
9. A no-nonsense approach to field efficiency.
10. Consistent internal communications at all levels, for good times and bad and for all the time. Give your people clarity.

The best defense is a good offense, meaning the best way to prepare for an unpredictable problem is to have plans in place.

Lastly, don’t let this crisis pass you by; use it to implement efficiencies and changes you’ve had on your mind but have been hesitant to implement.

Jeffrey Scott is hosting the Summer Growth Summit this August in Iowa where you will learn about more profit strategies to grow your company strong.