FINANCE
ALTERNATE PLANS We must continue looking ahead for the sake of our business, no matter how weird things get—or have gotten. BY PAUL CUMMINGS, Strategic Adventures
“Everyone has a plan until they get punched in the mouth.” — Mike Tyson
we can do when those uncertain times arise. You know, hypothetically.
ure out how much you’ll need, and then make a plan to get there.
This quote is very indicative of where we are this year. I think we all feel like we’ve been punched in the mouth. But that doesn’t mean we have to—and by no means should—stop planning.
PLANNING FOR UNCERTAIN TIMES
Key factors. The amount of working capital needed depends on a few factors. The first, of course, is the seasonality of the business and how many months of the year you are operating. The more months of the year you are open, the more working capital you will need.
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There are two different times during the course of a business’s life where planning for the unexpected happens. The first is during the initial planning stages of the business, and is often in response to some imaginary need that might befall the business in the future. This includes squirreling away cash or setting up lines of credit to use when needed. Insurance policies also put into place safeguards against damage to property, theft, employee injuries, and the like. The other time for planning happens when a disaster or unexpected event actually occurs, and we start scrambling. We scramble to comprehend what’s happening, try to deal with it the best we can, pray that someone else has all the answers and will share them with us, and try to predict the future. This is where many of us find ourselves today. While planning in this environment may feel like drinking from a fire hose, we’ve found that the best way to look at emergency contingencies is to break the challenges into small, manageable chunks. We’ll start by looking at some of the different ways that we can plan for uncertain times. Then, we’ll look at what
When you first started your business, chances are you were full of hope and wonder, with visions of sunny days, profitable seasons, and an image in your mind that everything is going to run smoothly in the future. By now, of course, you’ve realized that there will be potential problem areas ranging from employee conflicts and inclement weather events to natural disasters and the occasional global pandemic thrown in for good measure. By now you know that we have to prepare for these types of events. But what kind of planning goes into being ready for unexpected interruptions? WORKING CAPITAL
We always recommend that operators have a certain amount of working capital set aside as a cushion for the unexpected. This is by far the most important tool in planning for uncertain times—and the easiest to dismiss. It’s so easy to allocate cash on hand to more immediate expenses, like extra tree work or an additional platform, especially in the early stages of the business. At present, we probably don’t need to explain the importance and value of extra working capital. The trick is to fig-
The second factor is the availability of employees in the area. If it is difficult to hire staff for your business, you will want a larger buffer, in case you cannot open to full capacity at any point during the season. The third factor is the overall size of your facility. Larger facilities have higher cash demands and greater maintenance needs than smaller ones. Facility costs extend to any attractions that you operate, land that you operate on, and any buildings that you use for check-in, concessions, or other operations. How much do you need? Working capital needs are based on the business’s monthly fixed expenses, wages of critical staff, and your pay (or at least a portion of it). You can’t help anybody else if you can’t keep yourself above water! Here’s how to figure it: For this example, we assume that you have $40,000 a month in fixed expenses, $15,000 in critical wages, and $10,000 for you as the owner. That brings us to a total of $65,000 a month needed in working capital. At a mini-
