AmiSight 2/16: Are You Prepared for the Unexpected?
- Ami Kassar
- Feb 16, 2022
- 1 min read
I returned from eight days on the road and was asked countless times: what do I see coming down the pipe with the economy and interest rates? And my answer is always the same, if I knew for sure, I would be on the beach in Mexico right now having a good time.
The more serious answer is that I don't believe there has ever been a time in world history when countries worldwide have printed trillions of dollars in a relatively short period to keep tens of millions of people off of food lines. And now, all of the social, political, and economic dominoes are starting to fall as a result. Oh, and add the health dominoes to top it all off.
So what can we each do? First, stop trying to predict the unpredictable instead of shoring up our balance sheets to prepare for the unexpected. You should have reserves and a line of credit in place to deal with unknown emergencies, as well as the flexibility to jump on the opportunities that all of the uncertainty invariably will create.
I would add to your comment Ami that business owners can start looking at their financials and understanding key ratios (relationships within our numbers). This is the time when you run forecasting scenarios (best case, worst case most likely) using key ratios assumptions.
Example: What happens if COGS increases from 50% of Gross Revenue to 55%? How do I make room for that extra expense? Lines of credit will hold me X long, but then I have to repay that money quickly. Maybe that is not the best solution in this case. Maybe I can renegotiate a vender relationship or find a substitute product. Maybe that's not an option, but I have another revenue opportunity that has a COGS of…