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 $2000 with 30 days notice.
Research showed that most emergencies can be solved by $2000: 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 two thousand dollar 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 two thousand dollar challenge.
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.