A recent NPR podcast told of a report done back in 2011 by Oxford professor Peter Tufano.  He set out to examine how fragile American households are by exploring if a family could come up with $2,000 with 30 days notice.

Research showed that most emergencies can be solved by $2,000: unexpected car trouble; everyday small emergencies; a last-minute flight across the country to visit a sick loved one.

The source of the money didn’t matter: savings, credit, relatives, friends, beg, or borrow.

The report documented that nearly 25% of American households claimed that they would not be able to come up with the money.  Another almost-25% responded that they were unsure if they could come up with the funds.

The report referred to this 50% of the population as “financially fragile.”

Would this ratio hold true for the business sector: How many companies would be able to pass a similar test?  Could most organizations out there weather their own version of the $2,000 challenge?

  • What happens if merchandise doesn’t sell as quickly as we think?
  • How long could we survive if our biggest customer leaves us?
  • If a donor is delayed in his or her donation, could we ride out the storm?

However, if these are the only questions that you as a business owner are asking yourself, then you’re already too late.

Even before thinking about emergencies, we owners need to understand our liabilities and our exposure.  We need to have a keen understanding as to what expenses can we unburden ourselves quickly vs. those that legally will require some time or incur penalties.

  • How many days notice do we need to provide our employees?
  • Does our rental contract come with an out-clause and/or a penalty?

Of course, expenses aren’t the only area where our enterprises can be vulnerable.  The same questions need to be asked of our income.

  • How far in advance do customers need to notify us if they are ending the contract?
  • What is the likelihood that some of my clients might not pay on time?
  • At what intervals or milestones do our clients need to pay and do those dates parallel associated costs?

Only once we understand the DNA of our own businesses – from both the income and the expense sides – can we then set out to determine if our ventures are financially fragile and if we too could pass the $2,000 challenge.

– Shuey

 

N.B. If you’re skeptical about the results of your own DNA test or unsure how to even run one for your company or charity – my team and I can help.   More importantly, we can work with you to craft the right solution.  Contact us.