Snow, Rain, Fire – Planning for Contingency & Managing Financial Risk
If you are like most people, you probably weren’t planning on the historic “100-year” snowstorm we were lucky enough to experience this month. Sure, you had milk, bread and eggs in your house. But what happens to your business when you lose power for days, and snowplows are a no-show? How about the impact of school closures on your workforce? Were you prepared for managing financial risk such as this?
The trickle-down effects of the storm were pretty dramatic for businesses. Lower productivity translates into lost revenue. Not to mention, higher costs to companies to clear the snow.
In reality, it was darn devastating.
The truth is, we can’t know when an event like this will happen. It might not even be snow next time, but a fire or another natural disaster. It might even be the loss of a major client.
Although we can’t predict the type of event or when it will happen, we can and should construct contingency plans that address the unforeseen, including those events that would be game changing for our businesses.
A contingency plan is a plan that allows owners to continue business operations and manage risk in the face of a variety of unexpected events from simple to catastrophic – those as seemingly innocent as a two-hour power outage to those as complicated as a two-day disruption or the total loss of facilities due to fire.
Back to the snowstorm: Many of us had flashlights, snow shovels, batteries – and extra food and drinks, of course! Thereally prepared among us may have even had extra buckets of water.
So, what strategies do really prepared business owners need to put in place to minimize the impact of an unexpected event?
Following are our top-line suggestions for beginning to develop a solid contingency plan:
First, BottomLine Growth Strategies advices business owners to always have excess cash reserves (think of your reserve as a “rainy day” fund or even a “torrential downpour” fund). If your company is living payroll-to-payroll, you have no margin for error. We want you to put aside funds for situations just like this past week. If you currently don’t have cash reserves, plan to put aside a little each month and build your reserves over time.
For service companies whose revenue is generated by “people doing things,” consider having staff work remotely, and also, enable incoming calls to be routed elsewhere. Business does not have to stop just because people are stuck.
Look Into Insurance
Additionally, talk with your insurance agent and make certain your coverage is up to date based on the current size and expected growth of your company. Often, growing companies do not keep pace with their pace of growth in terms of insurance coverage.
Anticipate it All
Almost every business owner has a war story about the loss of a major client and what that loss did to their business. All business owners need to project what their new revenue picture would be and plan what changes will need to be made ahead of time. This is a difficult, but critical exercise. One that could mean the difference between surviving and not. They key is to be proactive in understanding the impact of a number of scenarios on your business, and to develop a response and implementation plan that allows you to act swiftly.
A Final Note About Big and Little Bumps in the Business Road
At some point, it is fairly likely that you’ll experience a business scenario that is a big deal. It is almost guaranteed you’ll experience multiple scenarios that are not so big, but very annoying deals. In either case, planning ahead gives you the opportunity to manage risk and protect the company that you put your heart and soul into. It’s heartbreaking to us, when companies don’t look out over the horizon and ask “what if.”
We encourage you to become a business owner with a proactive mindset – one who is managing financial risk possibilities, plans ahead and knows in advance what to do as business grows and/or contracts, gets dumped on by now or faces any one of the millions of scenarios that can make the difference between starting over and success.
Tags: financial, financial management, Managing Financial Risk