2005 has been the year of the natural disasters, starting with the
Asian tsunami and continuing with Hurricanes Katrina, Rita and Wilma.
Disasters happen and we all know it, but how many of us are really
prepared for a financial hurricane in our business? Bad news can come
out of the blue and it can range from the merely troublesome to the
absolutely fatal. What separates the troublesome events from the fatal
one? Your level of preparation. Falling in a swimming pool fully
dressed could be troublesome or it could be fatal, depending on whether
or not you learned to swim beforehand. The difference between a swim
and survival is preparation and foresight.
My own entrepreneurial credo is “Live to fight another day.” No matter
what business or life throws at you, you want to survive and rebuild.
Above all, stay in the game. Don’t let anyone or anything take you out
of the game. No matter how large or small your chances of winning the
game on an average day might be, once you are out, you have no chance
at all.
I started my business in 1987. In the process of getting it off the
ground, I sought the advice of older and wiser successful people. One
crusty entrepreneur told me that “Any businessman who can’t find enough
cash to cover one month’s payroll in a phone call is a fool!” It seemed
like harsh advice at the time, but shortly after that meeting, I myself
was faced with an unexpected cash crisis. Fortunately, I had enough
money in the bank to cover the problem, but the lesson was clear. I
have always kept a cash reserve available for the hurricane I know will
happen, but I don’t know when.
In my own career, there have been three separate cases when I needed to
access my emergency war chest rapidly or I would have been out of
business. In one case, the issue was as simple as a bounced check from
a large customer. I was expecting that check to cover payroll, and it
didn’t. The customer had an administrative snafu which was resolved
within a week, but I had to make payroll before the issue was resolved
and a new check cut. We were a struggling start up then, living hand to
mouth. It sounds silly now, but on that Friday afternoon long ago, my
employees were walking out the door heading to the bank to cash their
paychecks (most of which were not going to clear), it certainly wasn’t
funny. The whole business was at risk for an administrative error not
under my control.
Financial hurricanes can come out of nowhere. Just ask Card Systems,
the Atlanta, Georgia merchant processor who received the death penalty
from VISA for data storage mistakes and the subsequent leaking of
consumer data. The New York Times reported that Card Systems had
allowed a security breech which exposed 40 million consumer credit
cards to potential fraud. That number was vastly overstated – the
result of a careless remark by a low level official at MasterCard. He
or she was apparently speculating on the number of credit cards Card
Systems had processed during a six month period – which MIGHT (or might
not) be the number exposed to fraud. The actual number turned out later
to be much less, but the damage was done. After that, there was no way
Card Systems could control the public discourse which subsequently
forced VISA to issue the ‘death penalty’.
It was a tragic end to a good company. CEO John Perry handled the
situation as well as it could have been, eventually delivering Card
Systems into the hands of a willing buyer, Pay By Touch. In the
process, he managed to recover value for his shareholders and continue
serving his ISO clients and their merchants. Considering the issues at
stake, it was a great performance.
You can and should identify known risks in your business, and make
plans to deal with them, if and when things go wrong. The issues you
can’t foresee are the tough ones. I recommend keeping some cash around
for that inevitable rainy day.
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