Why SMBs need to focus on risk management during economic downturns — LJ Suzuki

The Silicon Valley Bank collapse was one of a few bank failures making headlines recently. So, as a small business owner, should you be concerned? On today’s Small Business Show, we’re joined once again by fractional CFO, serial entrepreneur, and the CEO of CFOshare, LJ Suzuki, to tell us more about the economic downturn we’re currently facing. 

The Collapse of Silicon Valley Bank:

In 2008, the world experienced its hardest and most detrimental economic downturn since the Great Depression of 1930. The Great Recession was the most severe financial crisis triggered by the simultaneous collapse of numerous unrelated financial institutions. Suzuki observed that Silicon Valley was only one of many victims of the recent bank collapse, noting that the other casualty, Credit Suisse, was on the other side of the ocean. These bank concerns have created contagion, which led to uncertainty for small business owners who rely exclusively on checking accounts to determine whether their organizations are secure and operating profitably.

Meanwhile, FDIC insurance stands behind a quarter of a million dollars of deposits. Which is a real concern for bigger corporations like Wells Fargo. Suzuki says, “the good news is that if your smaller bank goes into receivership with FDIC, the same way Silicon Valley bank did, it can create temporary disruptors. But, in general the FDIC wants to keep the banks moving and fully functional while undergoing a reconstruction period. 

Being on the cusp of economic struggles, Suzuki argues, “it’s always a good time to start a business.” Emphasizing that the majority of the most successful and long lasting small businesses started during economic turmoil. For example, M&M Mars, the biggest  candy distributor, started during the 2008 Great Recession. “Whenever the economy shifts, opportunities arise as a result.” Opportunities, however, are places where you can launch a profitable company. 

“Any time the economy is shifting, it’s creating opportunities.”

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Understanding what is changing is crucial, as the economy is presently moving away from cutting-edge technology and toward more fundamental services. Suzuki claims, “if you look back on the employment picture, there has been a tone of layoffs in technology at Facebook, and all the high tech bank chains like Silicon Valley, which got hit the hardest. On the other hand, returning to the service industry like the hospitality and restaurant sectors, which are experiencing a significant boom and largest job gap. 

Suzuki believes, “if you have an existing credit facility backing your business and perhaps you’ve been looking for a better deal, then take what’s in front of you.” He continues, “don’t get too picky, because if you have something that works for you, then just renew it and keep moving forward.” However, Suzuki claims, “as business owners, we often focus on the bottom line, returns, and ROI’s, but we don’t pay as much attention to the risk as to the rewards.” Since risk is difficult to manage, in the current environment, small businesses need to focus on managing risk, not just managing returns. 

To illustrate, Suzuki expresses, “there are all kinds of places you can find credit cards besides the bank or bank loans.” Adding, “a lot of small business vehicles are free and clear, it may be a small amount, but if cash constraints could be the difference between payroll or not, then the business could establish better capital relationships with customers and suppliers.”