In 2019, I wrote a blog offering tips for agency owners wanting to protect their businesses from an anticipated recession. Since then, the economic landscape has changed almost beyond recognition. While a recession remains possible, owners now are more concerned about the fallout from 2+ years of repeated business interruptions. Add in a challenging labor market; and, clearly, providing a firm financial foundation for your agency has never been more important.
Make Smart Choices about Debt
Managing debt remains key to any financial strategy. In hard times, you want to use your resources to deal with today’s issues rather than paying for past choices. Also, such times can offer a powerful temptation to take on additional debt that can take years to clear. Resist that temptation!
Here are some points to consider:
- Be sure you can service your debt and meet your recurring operational expenses if circumstances change.
- Know if any of your debts have terms or interest rates that may be impacted by outside economic conditions.
- Understand the terms of any “emergency assistance” loans or grants you accept. (Repeat after me, there is no such thing as free money.)
- Look at the length of the repayment plan before taking on new debt. Compare your economic projections to the loan requirements. If you don’t meet your projections, will you still be able to service the loan? Or will doing so slow your overall growth? Review older debt agreements as well, taking current conditions into account.
- At the beginning of a financial crisis, set a maximum amount of debt that you’re willing (and able) to take on to weather the crisis. Once you hit that limit, don’t talk yourself into trying to “hang on” just a little while longer.
- Remember that tough times can make it as difficult (if not more difficult) to restructure existing debt as to secure new loans.
Even if you are forced to close your business – temporarily or permanently – managing your personal and business credit ratings carefully can make it easier to recover or begin again once the crisis passes.
Stay on Top of Accounts Receivable
If you don’t already have a robust collections process in place, then you need to implement one as soon as money gets tight. It’s natural to feel sympathy for clients also facing hardship, but you need to look out for your business’s economic health first. After all, if you go out of business, where does that leave them?
Consider the following ways to help keep business flowing:
- If you want to help clients in need, consider offering temporary discounts on essential services – just be sure your new price point still covers costs.
- Understand the laws and regulations pertaining to debt collection in the different jurisdictions where you do business. That will give you a better idea of the accommodations you can make without compromising your rights.
- Make sure clients understand the repercussions of a lapse in coverage or interruption of other professional services. This knowledge can help them make informed choices about their financial priorities.
If clients do need to suspend or terminate a contract due to economic reasons, make it clear that you’ll still be there for them when conditions improve.
Build Resilient Staffing Models and Supply Chains
For decades, operational design experts advocated lean staffing and just-in-time supply chains to reduce operating costs. While these strategies have definite benefits in “normal” times, the current crisis has made the fragility of such systems clear. Fortunately, building resiliency into your systems doesn’t have to break the budget.
Consider these options offered by the new economy:
- Develop multiple supply chains for essential goods and services. Remember, it’s not enough to have a contact. You need to direct at least a portion of your regular business to these alternate suppliers to build a relationship with them.
- While the Great Resignation may have made hiring (and retaining) team members more challenging, it’s also created a lot of opportunities to build a contingency workforce. Just make sure you understand the labor and tax laws involved before you get started. Again, you’ll want to direct some of your work to these individuals to build trust and familiarity with “your way” of doing things.
- Embrace automation. In the past, many insurance businesses found it simpler and often more cost-effective to hire additional employees, rather than invest in automation. Today’s highly competitive labor market and recent advances in machine learning and natural language processing make automation more appealing.
The More Things Change …
Over the last few years, the workplace and the world in general have undergone profound disruptions. In the end, however, what we do and why we do it has changed less than we might expect. The insurance industry continues to be a great place for dedicated individuals who want to help protect their communities large, small, and even global, from risks. How we do what we do will – and should – continue to evolve, but relationships and trust remain at the heart of our business.