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By Del Chatterson
Special to the Financial Independence Hub
Do you know your Basic Defensive Interval? I was asked that question as I left a failed business venture and wandered off into the wilderness of between engagements. For entrepreneurs it’s an important question to answer, “How long can we survive without income?” For a business start-up, it’s the number of weeks or months before you get to break-even cash flow. For an operating business, it’s how long can you survive a disaster without any revenue.
For an individual, it means how long can you continue to cover your living expenses if your monthly income suddenly stops. How much cash do you have set aside to carry you through such an event? We always knew there were unpredictable economic and financial risks that we could not prevent or avoid. Maybe we maintained insurance coverage and had a contingency fund, just in case. But none of us were prepared for a global pandemic that would shut down normal business activity for two or three months. It may be six months to two years before we get back to anything approaching normal business activity.
Tactics for the next phase
We have all found a way to get through this temporary shutdown and contributed to slowing the spread of infection to allow health care workers and facilities to handle the case load. We are now entering the end of phase one of the 2020 coronavirus pandemic, we hope. Is it time to start switching from defense to offense? Caution and constant monitoring will be appropriate as businesses reopen and people go back to work, but it’s time.
The tactics for good financial management through any economic crisis remain the same for this one:
- Assess the changed environment and the new rules of engagement.
- Update your budget for your estimated minimum monthly financial needs and any unavoidable large cash outflows.
- Stay focused on your own particular circumstances. Avoid being distracted by the bombardment of global pandemic news.
- Don’t freeze. Don’t over-react.
- Be calm, rational and confident in your ability to adapt. Be pro-active.
- Look for the silver lining in the dark clouds: maybe there are new opportunities for you and your investment portfolio.
- Take advantage of continued low interest rates.
- Review your investment portfolio and evaluate which industries and businesses are responding well and which are not. Look for the solid performers with lower risk of permanent setbacks. Replace those that may never fully recover and with those that have continued good prospects.
- Don’t convert to cash, convert to better investments.
- Start rebuilding your cash reserves and extending your Basic Defensive Interval in preparation for the next unexpected economic disaster.
Be patient, cautious and responsible. This too shall pass.
Stay safe, take care of yourself and others, wash your hands and stay well.
Del Chatterson, your Uncle Ralph
An entrepreneur and business advisor, consultant, coach and cheerleader for entrepreneurs, Del Chatterson has written extensively on business topics for decades. He is now writing fiction with this series of Dale Hunter crime novels and a short story collection in progress. Originally from the Rocky Mountains of British Columbia, Del has lived and worked for the past forty years in the fascinating French-Canadian city of Montreal, Quebec.
