by Lynn Grodzki, LCSW, MCC
Published in the Private Practice Success Newsletter, August 2011 Edition
Most economists agree that we are living in risky economic times. On both a macro and micro level, the financial future is uncertain and worrisome.
What can a small business owner do to prepare for a possible extended downturn?
This month, I will walk you through a clear plan to minimize business risk, so you know how to protect your practice.
Practice-Building in Hard Times
Building a small business is hard and risky, even in the best of times. A large percentage of small businesses fail, and the creation of a business built on “intangibles” – services that are hard for the public to define, explain, or measure – adds to the difficulty.
Because you have so much of yourself, your skills, and your finances tied up in your practice, it is important to evaluate risk. When the market is tough, it’s essential that you evaluate any business vulnerabilities.
By risk, I mean both what you do and what you don’t do that can threaten the survival of your private practice.
But risk avoidance is a two-edged sword. You may think that curtailing all investment into your practice right now is the best way to avoid the risk of economic failure.
But not investing in your private practice or giving it enough time, money, energy, opportunities, or brainpower is a way to threaten its survival.
In my newest book about practice building in hard times, Crisis-Proof Your Practice: How to Survive and Thrive in an Uncertain Economy, I explain several ways to manage your business risks. Here are three strategies you need to think about and take action on now.
Risk reduction is a way to evaluate the dangers to your practice and then minimize the severity of the loss or potential loss. For example, one basic method of risk reduction in your home is having smoke detectors to warn you of a potential fire.
Risk reduction (think “smoke detector”) for your business includes:
• A written business, marketing and financial plan, backed by your own data, that will help you evaluate and track the state of your practice at any given time.
• A cash reserve to cushion the operating expenses of your practice. (Each practice needs a minimum 6 months reserve to help you get through especially tough months and still pay your basic operating expenses.)
• Regular self care for the business owner so that you as the primary service delivery person don’t get sick, exhausted and unable to work, market and fulfill responsibilities to clients.
• Completing your records and keeping files updated.
• Developing a brain trust of advisers for professional support to help you strategize your next steps, especially when you are tense or anxious.
I know, for many readers, this list may feel overwhelming. If so, think about it this way: This kind of business planning is difficult for many, especially if you were not trained in business. Not surprisingly, a lot of the individual business coaching I do right now focuses on protection. Small steps can have huge results. I see, repeatedly, that anxious professionals can become much calmer business owners by taking the right actions.
And there is more to consider on this topic. Here are 2 more strategies:
Risk retention means having a way to accept and survive a business loss if and when it occurs.
Let’s say that you have a private practice in a cold climate, and an unusual series of snow and ice storms put you out of business for a month. This risk of weather is one that can’t be avoided, reduced or transferred and is “retained” by you, by default.
Risk retention (think “bad weather”) requires that you:
• Plan for worst case scenarios and then try to average out losses over time (the bad winter month gets incorporated into the overall profit and loss statement for several months or a full year, to try and amortize the loss.
• Anticipate slowdowns and losses as a normal part of the ups and downs of doing business and keep a reserve of clients (waiting list), cash (savings) or opportunities (networking or marketing possibilities) so that you have more than enough to keep you busy in slow times.
• Focus on staying flexible in how you deliver service; if clients can’t come into your office when their child is ill or weather is bad, can you do the session by email, by phone or send them an audio tape or written report that you have created specifically for them during the session time to substitute?
Risk transfer means that you transfer a loss to another party, by contractually having agreed to the risk. In this way, the risk doesn’t fall entirely on your small practice, but is either shared or taken on by someone else.
Risk transfer (think “sharing”) includes:
• Enforcing cancellation policies that you and your client have agreed to. If the current policy is too harsh, set one that you can live with and enforce without discomfort.
• Negotiate with landlords or other vendors for a reduction in price or payment terms when circumstances cause a loss of income. Often a landlord, credit card company, training company, or other vendor is willing to work out some temporary terms of payment rather than lose your business altogether or see you go bankrupt.
• Maintain insurance including malpractice insurance, rental insurance, and life insurance on partners or associates, if their income is critical to the operating income of a practice.
OK, do you need help securing your practice against risk?
Let’s work together on this. Schedule an intro session today to see how business coaching can help you cope with a difficult economy by clicking here.