How to Stress Test Your Business
We are in the midst of a remarkable economic period. A few weeks ago, ‘inverted yield curves’ brought predictions of an impending recession. In September, the TSX reached a record high and unemployment levels hit historic lows. But warning signs and threats persist, including on-going trade wars, geopolitical tensions in the EU and Middle East, a slowing global economy and high debt levels.
Is Your Business Prepared for a Potential Slowdown?
During long periods of economic growth, it is easy to become complacent, but is your business prepared for an economic slowdown or recession?
Cash is King
During any economic slowdown the need to preserve cash is paramount. Will you have enough cash to keep afloat if:
- The time it takes to collect accounts receivables doubles, or triples?
- Your net sales drop by 5%? What about 10%?
- Your profit margins drop 15% when you reduce the price of goods or services in order to compete?
- Your available credit is reduced by 50%?
During this one hour presentation, Chad and Anne run a financial stress test simulation to demonstrate how changes in different financial measures can impact your cash flow. The stress test simulation is followed by a discussion on strategies you can pursue to help minimize the impact of these changes.
Strategies to Offset the Impact of a Slowdown
When finances start to become stretched there are numerous steps you can take to improve your position. We’ll cover:
- Approaches for improving your accounts receivables
- Working with clients and suppliers to improve cash flow
- Reviewing fixed costs and assessing where to make cuts
- Examining the cost of goods sold to identify potential areas to save
- Reviewing your key financial ratios and maintaining productive relationships with your lenders
- Seeking out alternative sources of financing
Even if economic conditions remain robust, many businesses can experience their own slow down, and thriving businesses can benefit from improved financial performance after conducting a stress test.