Building Resilient Businesses: Strategies for Success

Building Resilient Businesses: Strategies for Success

By Rich Balestracci, SVP, Commercial Lending Department Manager at Chelsea Groton Bank

In today’s economic landscape, the ability to adapt and thrive amidst uncertainty is what sets successful businesses apart. Imagine navigating through supply chain disruptions, economic fluctuations and the rapid evolution of digital technologies, all while maintaining a competitive edge. This is the reality for many business owners today.

Over the past five years, businesses have faced a whirlwind of challenges: from supply chain hiccups and economic unpredictability to the rise of cybersecurity threats and the complexities of digital transformation. Add to that the pressures of wage inflation, talent acquisition, and the balancing act between remote and in-office work; it’s clear that resilience is no longer just an option but a necessity.

To build this resilience, businesses must focus on talent engagement as well as these critical areas: optimizing their balance sheet, evaluating their income statement and managing risk. By honing in on these aspects, you can not only weather the storms of uncertainty but also seize new opportunities for growth and innovation.

Optimizing Your Balance Sheet

To optimize your balance sheet, focus on working capital by reducing the cash conversion cycle in order to maintain adequate liquidity. This includes reviewing if you currently have the appropriate levels of inventory, or if you could scale back so you can be more flexible about where money is allocated. 

Improving payment collection practices and negotiating more favorable terms with suppliers will also help reduce cash strain. Additionally, the business’s overall capital structure should be reviewed and positioned to manage through supply chain issues, shifts in demand or even to take advantage of potential new opportunities. Diversifying funding sources and managing debt effectively can provide a greater degree of flexibility to respond to changing business needs. Lastly, you want to ensure you are adequately protecting assets, including physical assets, staying mindful of fraud mitigation, and evaluating whether business interruption insurance or credit insurance can help protect you from external events.

Evaluating Your Income Statement

On the income statement, focus on understanding the factors that most impact revenues and expenses. Understanding the price elasticity of demand for your product or service is essential, as it helps you gauge how sensitive your business is to changes in price and quantity. Questions to consider include: 

• How would increasing production impact pricing for your product or service? 
• Or, conversely, how would a drop in demand for your product of service impact your pricing?

Another key consideration should be understanding your operating leverage. Operating leverage is essentially the correlation between changes in revenue and the corresponding impact on net income, with the impact being driven by the level of fixed and variable costs. Higher fixed costs result in pressure to achieve a higher break-even revenue, but greater profit margins after the break-even point. Lower fixed costs and higher variable costs result in more steady net income changes, reducing risks related to sudden revenue swings. Businesses should seek out operational efficiencies and find the optimal balance between fixed and variable costs to enhance profitability and provide opportunities to scale effectively.

Managing Risk

Risk management is another critical area. Consider diversifying supply chains to reduce dependency on any single source and exploring digital solutions to help streamline operations and improve efficiency. Additionally, businesses should consider the potential impact of tariffs, the geopolitical climate and the development of artificial intelligence on their operations. 

As cybersecurity threats continue to be on the rise, ensure there are security measures in place to protect sensitive data. For example, employees should be educated on how to spot counterfeit checks and instructed not to accept changes in wiring instructions over email. Instead, they should independently confirm wiring instructions in person or by phone with a trusted and verified phone number. 

It’s important for businesses to set up online and mobile banking alerts and push notifications for high-risk or high-value transactions as an additional safety measure. Bank accounts should be monitored daily so fraud can be identified quickly, providing business owners with the highest probability of recovery.

Navigating market uncertainty requires a proactive and strategic approach. These considerations should always tie into a thoughtful business plan that is revisited and updated as a working document. By focusing on optimizing your balance sheet, analyzing your income statement and cost structure, and managing risks effectively, businesses can build resilience and adaptability.

Interested in learning about Chelsea Groton and all the ways the bank supports businesses?

Visit chelseagroton.com. Member FDIC. Equal Housing Lender. NMLS Institution ID 402928.