U.S. passenger numbers are at record levels, but packed terminals aren’t stopping them from enjoying wait time for a flight.
Disasters can hit your company at any time. Whether it’s a terrorist attack, a natural disaster such as a hurricane or tornado, or even the loss of several major accounts, your company could suffer unrecoverable financial distress. Preparing for these situations could mean the difference between recovery and going out of business. Many people talk about evacuation plans and other physical planning, but seldom talk about the financial side of a disaster.
“You have to think back to 9/11,” says Dennis Adams, president of Celebrity Limousine in Malvern, Penn. “The phone stopped ringing. Your revenue may be cut in half or even stop altogether for an extended amount of time.” That’s the first reality. Your revenue stream, which is the life blood of your company, will literally dry up overnight. The second reality then hits… How does it affect me? The answer is it could put you out of business fast!
If that happens, you have to then deal with it immediately. If you don’t have revenue, you have to shed expenses. Under normal business operations, your client base provides your company with income. You then pay your expenses with that income. The money left over is used to grow your company. When a disaster strikes, the lack of revenue creates a new priority — survival.
1) SELL VEHICLES The first thing you have to do is dispose of vehicles. If you’re a 40-car fleet, and you’re suddenly down to operating 17, the rest of your fleet is expendable. The best thing to do is to shed those vehicles immediately — don’t wait. Just after 9/11, everybody was selling vehicles. That meant the value of the cars dropped. But it kept dropping more and more each day. That means you have to move fast. The longer you wait, the less your vehicles will be worth. “When 9/11 happened, I sold off three quarters of my fleet in 10 days,” says Adams. “The value kept dropping and I actually took up to a $3,000 loss on some of the loans.”
He adds that the loss is insignificant compared to what could have happened if he waited. It’s better to take a small loss up front, and shed the expense of owning that vehicle. Remember, you are not just paying the payment on the vehicle; you have insurance, maintenance, and interest on that vehicle. “Some operators waited a month to see if anything would change. It didn’t. Those operators were then stuck with rolling stock that they weren’t using and their value had hit bottom.” That’s not a situation you want to be in!
2) NEGOTIATE EMERGENCY PAYMENT TERMS Adams then went to the rest of his vendors and negotiated emergency payment terms. “Go to your landlord and ask would he rather have you move out and have the building generating no revenue at all, or would he rather temporarily accept partial payments until the market comes back to life,” he says. “Once everything is back to normal, you then get all amounts that are in arrears taken care of.” This type of negotiation will work with most of your vendors. They would rather have at least some money coming in, rather sitting on repossessed assets that they can’t sell. “You have to contact them as soon as possible. Don’t play the duck and hide game with them.”
With the fleet vehicles that Adams kept, he called Titus Leasing and Ford Motor Credit and told them he would do the best he could, but there was a strong possibility that payments could be late. “One of my creditors took the next three payments and put them on the end of the loan,” he says. “That gave me a three month reprieve while letting them know I would work with them to get back on track.”
3) REDUCE LABOR COSTS The worst part of surviving a drastic business downturn is the fact that you have to let employees go. “You can either let some people go, or ask them to take a temporary cut in pay,” he says. “Just like your creditors, once your revenue comes back, you can get them caught back up.” Everything about your business revolves around your revenue.
“You’re trying to save a business you put your blood, sweat, and tears into,” says Adams. “Sometimes you have to make decisions you wish you didn’t have to. It’s a part of being a leader.” The whole thing is about reacting to the change. You can’t sit idly by and not take immediate action. If you do, you probably won’t make it.
4) CUT UNNECESSARY EXPENSES There are also other items you can eliminate to cut expenses: • Satellite TV and radio subscriptions • Payroll companies: You can get the tax tables and other tools from the IRS to get you by until things come back. • Tool or equipment rentals: Pressure washers, high-end copiers, vehicle diagnostic machines, as well as many other pieces of equipment, can be either replaced with a less expensive one or even completely done away with. • Evaluate all services: If there are other services that you can do without in normal operations, get rid of them.
5) GAUGE THE SEVERITY When you are cutting your expenses, you need to determine the severity of the situation. For example, if your geographic region suffers a minor situation such as a small hurricane that knocks tree limbs down and leaves the area without power for a few weeks, it may only affect your business for a month or two.
“However, if God forbid, a terrorist attack occurred in a major city, the ramifications could be felt for a couple of years,” says Adams. “You have to look at the situation, gauge its impact, and adjust your strategy according to the potential downtime.”
Preparation can mean the difference between sinking and swimming. You need to look at how your company is run and what it needs to survive. These things are what you need to concentrate on in your disaster planning.
PRACTICING FINANCIAL HEALTH ALL OF THE TIME When disaster strikes, the first thing business owners think about is whether they will be able to continue paying their bills. This is because most of us utilize the “fair weather business plan.” This means that our worst-case scenario planning still focuses on having some business coming in. The truth is, we should always be planning for a day when there is no business at all.
The luxury ground transportation industry is a small profit margin business. This means you need to pay more attention to the bottom line. This also means you need to be more vigilant toward your expenditures. If you plan things properly though, you can prepare for anything that comes your way. Here are a few suggestions:
AVOID IMPULSE PURCHASES • Ask yourself: do I need this or just want it? If you need it, then it is the time to buy.
ALWAYS SHOP FOR THE BEST DEALS • Many people purchase things at the spur of the moment or from a vendor they have been doing business with for a long time. These people may not be giving you the best deals. Do the research and comparison shop… don’t be afraid to negotiate price.
PAY EXTRA ON LOANS • The more you pay on your vehicles and property, the less you owe. The quicker you pay things off, the better situation you’re in when a disaster hits.
SELL THE VEHICLES WITH NOTES • If a disaster hits and you own some of your fleet outright, then the vehicles you should liquidate are the ones you owe money on. The rest of your fleet is only costing you insurance and upkeep at that point.
CREATE AN ANCILLARY BUSINESS • Get the most out of various departments within your company. If you have a fully staffed detailing dept., for example, a detailing business could generate extra income on a daily basis while increasing your company’s survival ability.
SETTING UP A BUSINESS SURVIVAL KIT When a disaster strikes, money isn’t the only item you may find in short supply. Many of the things we take for granted every day could be temporarily lost. You could find your business back in the pre-technology days, fast. What are some of the things you would need? How could you better prepare your business for this situation?
FUEL Always be sure vehicles are returned to the shop with full tanks. While owning an on-site fuel storage tank sounds like only something the large companies can afford, the truth is a 100-gallon tank can be purchased for as little as $400. A simple Internet search can provide details, including federal regulations covering underground storage tanks.
POWER Generally, the first thing everyone loses after a disaster is power. Most of us have become reliant on technology and are lost when the power fails. Having a generator could alleviate this situation. Prices can start at $300 for a small generator and go as high as $23,000 for a system that will power a large company’s entire facility.
COMMUNICATIONS It is also wise to have two-way radios on hand in case the cellular network is attacked or fails. Your chauffeurs need to be able to communicate with your facility.
SUPPLIES Many people think about emergency supplies for their home, but very few prepare them for their business. Yet, what if a disaster happens that traps you at your business for an extended amount of time? A large blizzard could easily trap you there for days or even weeks. In cases such as these, you should have: nonperishable food (canned), bottled water, breakfast or protein bars, bottles of juice, a non-electric can opener, blankets, first-aid kit, flashlights, batteries, toothpaste, toothbrushes, and any other personal hygiene products.
CASH Another side affect of a disaster is that credit card processing may fail. The machines may lose contact with the main server rendering your cards useless. For cases such as this, it is wise to store at least $300 cash in your emergency kits.
CREATE A DISASTER FUND Many business owners create a savings account that is earmarked for emergencies only. This fund can mean the difference between having the ability to “weather the storm” or sink after suffering a disaster. “If you discipline yourself enough to save money each month, you could possibly accrue enough revenue to get you through a prolonged hardship,” says Adams. “Of course, you also need to have the self-control to not touch this money for any other reason than an absolute emergency.” There are two ways to determine the amount:
TIME-RELATED FUND: This is where you save enough money to last you between three-to-six months of business inactivity. Determine your fixed monthly expenditures and multiply that amount by the number of months you wish to save for.
PROFIT PERCENTAGE: Some operators prefer to just take 5% of each month’s profit and put it into this fund. It is possible that by the time you need the money; enough will be accrued to get you through an extended time of slow or no business.
Some people use a line of credit as an emergency fund. “This is a bad idea,” says Adams. “If a major disaster occurs, the first thing a bank will do is to revoke all lines of credit and you’ll be without that important funding.” He adds that it is always better to have available funds that you can get to that have no notes attached. “It doesn’t matter if you have a $10 million line of credit — the first businesses to tighten their belts after a disaster will be the lending institutions.”
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