Preparing for the (Winter) Storm
Well, it's official: The Midwest is getting absolutely obliterated by a winter storm. Every city is different, but in mine, we received +/- 20 inches of snow in a 3-day stretch and are now getting crushed with -40-degree wind chills. This type of weather has many different consequences.....and none of them are good.
One such consequence that's becoming increasingly apparent is the stress on businesses. Simply put, people mostly stay home with these harsh conditions. That means less business for retailers, restaurants, coffee shops, and entertainment venues. In other words, business came to a screeching halt for many entrepreneurs.
Unfortunately, this will most certainly be the undoing of some businesses. It's sad, but inevitable. I don't wish that upon anyone, and I feel for people going through it.
It brings me to an idea I constantly reinforce for my family and business clients. We need to be prepared! When we're in the midst of our normal life, we're just living. Things generally feel good, and we're operating as though life will perpetually feel this way. That's the risk. Life won't always be normal like this. A storm will come, whether that's a literal or figurative storm. As such, we must be prepared! It's not an if, but rather a when. It's coming! And for countless businesses in the Midwest, the when is right now.
Whether you're a business or a family, the preparation process is similar. Here's a quick guide to getting yourself ready:
First, recognize that a storm WILL come.
Second, set aside some cash reserves that will only be used when the storm approaches. To determine the right amount, we must ask ourselves what the worst-case scenario is. If we're a business, it might be a situation where we aren't open for a few weeks. If so, what will that cost? We need to account for our overhead expenses, lost revenue, product waste, and possibly owner distributions (if our family relies on them to survive). In my business, I always keep $10,000 of cash on hand. At Northern Vessel, we keep at least $25,000 liquid. I have other business clients that keep $100,000-$300,000 in reserve for the storm.
If we're a family, we need to do a similar exercise. What's the worst that can happen to us? This question typically leads to the following types of situations:
Job loss
Car breakdowns (usually a $5,000 cap)
House maintenance issues (typically capped at $10,000-$12,000)
Medical situations (dependent upon health insurance, but can be upwards of $10,000)
Some families feel comfortable with $5,000 liquid, while others need upwards of $30,000. If you're feeling uneasy, pick a higher number.
Third, we must pre-determine what we'll do to our monthly budget when the storm comes. I have a lot of my clients do this exercise at some point. If you need to cut $1,000/month, what would you cut? I call it "red alert lockdown." Know what the cuts will be.
Fourth, remember all storms pass....eventually. If you're in one, this too shall pass.
Be safe out there, friends.