Across America, but particularly in Northwest Arkansas, we are in an unprecedented boom period of growth and expansion. Everything looks good.
The Northwest Arkansas metro unemployment rate is only 1.5%. That’s crazy. Houses sell for record prices and get multiple offers within a day or two of going on the market. Car dealers don’t have cars. We bought a new car recently, and the dealer only had two new cars on their lot. It’s crazy. It seems like everyone is making money right now. It’s almost like the California gold rush of 1849.
But as good as things are, there is one thing we old-timers know. And that is it won’t last forever. Everything cycles. It always does. There are plenty of storm clouds on the horizon. We could have another pandemic. We could have political instability. Interest rates could go stratospheric. The stock market could crash, or we could get sucked into a war somewhere.
None of us can predict the future with precision. So it’s best to be prepared — especially if you are a business owner with employees and customers counting on your survival.
Here are some things I would be focusing on right now:
- Developing contingency plans. It might be wise to spend a little time thinking about various “what if” scenarios that could develop. Deciding how you might respond in advance of the actual problem occurring may help you react fast if it does. Think about the most likely events that could happen and have a plan for each.
- Brand-building marketing. The more recognizable your brand — the greater the familiarity of your brand with your target customer group — the lower the risk is associated with their buying decision. That’s what you want if the market suddenly declines. So this takes money. And it may not result in immediate sales. But over the long term, it could make selling everything easier and get you higher prices, as well as increase the value of your business. It takes consistency!
- Differentiating your business from your competitors. In any mature industry, this is crucial. Yet, when demand exceeds supply, it’s easy to forget how important this is. Only when demand is less than supply does it (differentiation) become crucial. You want to have something no one else sells. And even if someone else does sell it, you want yours to be a little different, a little better.
Reducing debt and converting what debt you have to have into the longest term, fixed-rate debt you can get. With rising inflation, you can expect higher interest rates. It’s inevitable. And you should do some back-of-the-envelope calculations on how costly that could be if rates go to 6%, 7% or even 8% or more. Just get yourself in a position where that, if it happens, it doesn’t impact you significantly.
- Securing additional credit facilities. Get credit before you need it. Things such as lines of credit based on your accounts receivable, inventory financing, or other lines of credit could be helpful if you suddenly find yourself short of working capital. Talk to your banker now.
- Dumping nonessential assets and getting more liquid. I would define “nonessential” as anything that doesn’t make you money but instead costs you money. Like your lake house. Or motorhome. Or whatever you have carried by your business that doesn’t make money. Save your “dry powder” for use when you need it. If nothing else, you may be able to buy equipment, real estate or another business cheap if you want to.
Mark Zweig is the founder of two Fayetteville-based Inc. 500/5000 companies. He is also entrepreneur-in-residence teaching entrepreneurship in the Sam M. Walton College of Business at the University of Arkansas, and group chair for the Northwest Arkansas chapter of Vistage International. The opinions expressed are those of the author.