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When you read the phrase "stress test", what thoughts pop into your head? I'll go ahead and assume that they aren't very positive. Most people think that banks and businesses only undergo stress testing when they are on the brink of disaster, but stress test shouldn't be a last resort of your financial plan. Stress testing your business investment keeps you competitive by allowing you to be proactive.
The economy has changed the way we do business and the speed in which we need to adapt. Stress test can be used as financial indicators that allow you to prepare for the worst-case scenarios that your business can come across. It helps to cover the "what ifs" of running a business:
- "What if" our biggest customer goes out of business?
- "What if" customers start demanding lower prices? Can you meet them?
- "What if" customers start taking longer to pay you?
- "What if" sales or production levels drop?
Stress testing your business has its benefits. It allows your business to be more adaptable to changes by providing the financial data you need to make quick and accurate changes to your business. Stress tests also help you formulate plans that address the "what ifs" giving you leverage when dealing with stakeholders and bankers, not to mention making you a stronger competitor.
The market is down and unemployment is up. We all know this; we've been hearing it every day for the past year. Many people are becoming numb to the numbers thrown at us. It's not news anymore; it's becoming the new normal.
Some companies have decided to sit still and wait for the economy to turn around and others have started to recognize that things aren't going to change until someone makes a move.
These companies have stopped asking why and started asking how. They know that in July national unemployment was at 9.7%. They're aware that it's the highest it has been in decades. They know that the GDP is down. They know this stuff already and have turned from focusing on the problem to focusing on a solution. These companies haven't become numb to the numbers; they keep them in mind while driving business forward. They know that in order to fix the problem they can't lose focus on key performance indicators like liquidity, solvency and cash flow.
A solvent company is aware of its performance indicators and are better equipped to not just survive, but also thrive in the economy. They're doing their research looking for new growth opportunities, forging new partnerships, and taking time to focus on what they do best. Don't sit in the corner waiting out the recession. Focusing in on mere survival will make you lose sight of your overall business plan. Keeping track of your financials will give you a leg up in competition and give you time to sharpen your focus.