How To Stay One Step Ahead Of Business Setbacks
By JD Esajian on March 15, 2019
Running a business is one long roller coaster ride. Just when you think you have things figured out something unexpected comes out of nowhere. How you handle this often defines your business. Your ability to make tough decisions and react to whatever comes your way is an underrated aspect of entrepreneurship. This is magnified in the world of real estate investing.
Every investor has a horror story of a lost deal at the 11th hour or an unexpected issue in the middle of a fix and flip project. Instead of sitting on your hands and feeling sorry for yourself you need to take action to mitigate the damage. Being one step ahead of the inevitable setback allows you to make smart decisions without skipping a beat. Here are five things you can do to prepare for the inevitable business setback.
- Form A Contingency Plan: It is never smart to react to a business gut punch after it happens. During a setback you will make reactionary decisions that are often based more on emotion than rationale. The best way to avoid this is by thinking of projected problems before they happen. There are many investors who will tell you that this kind of thinking is negative and brings everything and everybody down. There is a difference between pessimism and realism. It is not negative to at least consider what can go wrong on a project. Instead of avoiding it you should prepare for it. In real estate, things don’t always go right. In fact, setbacks are almost considered the norm rather than the exception. If you don’t form a contingency plan you open yourself up to problems. Hopefully, you will never hap to tap into your contingency, but it is nice to have in your back pocket if you need it.
- Stay Calm (Don’t Make The Problem Worse):The first step in dealing with any type of setback is accepting it. As we stated, real estate investing is full of potential problems. Think about what it takes to pull off a successful fix and flip transaction. For starters you need to get the property at your price. After acquisition you need to schedule work to be done, all while staying under budget and hoping there are no hidden problems with the property. Assuming you pull everything off, you still need to find a buyer and sell the home. There are plenty of other moving parts in each of these areas. You are bound to run into a snag along the way. Instead of blowing up and melting down when it happens you need to stay calm and almost embrace it. If investing was easy everyone would do it. The people on your team and around you will judge you on how you handle adversity. If you blow up and overreact they will not want to work with you, or recommend you, moving forward. Conversely, if you are calm and level headed they will gravitate towards you and want to be part of any project you are involved with.
- Assume WCS And Work Backwards: Before you get into any project you should think of what the absolute worst-case scenario is and work backwards from there. Few investors use this thinking unless something bad happens. At that point it may be too late the salvage the deal, property or relationship. Using the rehab example think about what could completely catch you off guard with the property. If you bought sight unseen or at an auction there are a slew of potential problems either with the foundation, electric, plumbing or title. You need to assume that there will be a major undiscovered issue and prepare for the worst. This could mean simply allocating extra funds to your budget or considering a remedy with the property. If you play out the problem from the worst case and work backwards, the problem often doesn’t seem as detrimental as initially thought.
- Don’t Waste Favors: We have all heard the story of the little boy who cried wolf. The same thinking should be applied to your business. Not every transaction needs a rush, or a favor. You can’t ask your paralegal to rush title just once all the time. You shouldn’t ask your contractor to sharpen their pencil on this deal if you do it all the time. You should save your favors for when you truly need them. What you will find is that when the unexpected happens you will be glad you saved them. Think about how you treat the people around you on every transaction. The better you treat them the more likely they will do a rush job or go the extra mile if you ask them.
- Build A Strong Team: When the unexpected happens, you should tap into your resources and lean on the people around you. The best way of doing this is by building a strong team. Your attorney, contractor, real estate agent and business partner can all be valuable team members that will help with a solution. Without a strong team, you will be left to act on your own, without guidance or advice. Furthermore, your solution may not be in line with reality and you will end up making the problem worse. A truly strong team can help weather any storm and go through any setback.
Things in business don’t always go as planned. You need to accept this and be ready for anything that comes your way.