And while prudent government support packages largely helped protect Australia from the economic toll that other countries experienced, recent floods and fires and the return of state-based lockdowns have proven that risks to businesses are still ever present and you must be prepared with your own business continuity plan for when unexpected events disrupt your business.
HAVE A FINANCIAL PLAN
Disruption can come in many forms but in almost all cases your cashflow will be one of the first areas where you feel the pain. Government support is not always applicable and even then, is unreliable and often inadequate. To prepare for this you should be aiming to structure your finances such that you have an emergency fund of available cash that you can draw down on in the short term until other support arrives or your business recovers. The amount will be different for every business but usually 3 months of essential operating costs is a good buffer to keep on hand. The other practical cashflow musts include putting in place forward cash flow projections and proactively contacting your lenders and suppliers early in the piece explaining the situation and that you may be delayed in making payments. If nothing else this signals that you are in control of the situation which will usually buy you a bit more leeway.
MANAGING AND ANTICIPATING THE RISK
There are also many other strategies you can employ to anticipate risks and make these disruptive events easier to manage when they do occur. One key strategy is ensuring you have offsite backups for key financial and business records. Modern cloud-based storage and accounting systems make this easy to execute. You must also ensure you have enough of the right insurance in place to cover you against your biggest risks and protect your assets. While income protection or business interruption are a must, I also advocate strongly for cyber protection insurance with this type of fraud becoming more sophisticated and harder for software to keep out. Lastly, one of my favourite tools for managing risk is an internal risk register through which you can identify the specific risks most relevant to your business and have a plan for avoiding or better managing these when they do occur. As they say prevention is much better than any cure!
HOW FLEXIBLE IS YOUR OPERATION
Another must for businesses in protecting against disruption is ensuring your business operation is flexible enough to move quickly if key assets and people are compromised. Strategies to have in place include having staff setup with the equipment and know how to work from home, ensuring cross training of key roles and having a plan in place to move your fixtures and stock in a hurry which will save you precious time when a disaster is looming. One harder to execute but very important strategy is ensuring your trading is diversified across different industries, geographic and demographic sectors. It also helps if you have different channels to market i.e., online, email, telephone and face to face sales in case one of these channels becomes compromised.
CUT COSTS AND KNOW YOUR RIGHTS
When your business is suddenly hit by a disruptive event that shutters operations you must move quickly to control costs. An obvious one is to cut all non-essential discretionary spending, but you should also contact key providers (rent, utilities, financing companies etc.) and see what support they are willing to offer. Temporary excess staffing can be the big concern for many businesses and there are options available in terms of temporarily standing down staff or enforced leave, but it is imperative you understand your legal rights and responsibilities in this respect. For small business it can often pay to have an engagement with a HR specialist, such as the industry leading Employsure, to protect your business and your employees interests in these circumstances.
As marketplaces have opened so have many opportunities for small businesses, but it has also resulted in an increase in the risks involved in running a business and has turned a business continuity plan from a “nice to have” to a “must have”. When your business is disrupted, the key is to move quickly and take a considered but decisive approach, with good financial planning and early communication being at the bedrock of this.
Disclaimer: This is article provides general advice and is not intended to be tailored business, accounting or financial advice. Advice may vary depending on your specific circumstances.
Joseph Essey is owner of Your Business Finance Manager. www.ybfmanager.com
