In 2020 we all learned that business income can dry up almost overnight and that another major crisis may be just around the corner.
"The biggest mistake is not planning for bumps in the road," says Dan Crompton, a small-business coach with ActionCoach UK in London. "There will be a big event every five to 10 years," he says – an economic downturn, a pandemic, political upheaval such as Brexit.
Here's how to prepare for the next disaster:
Prioritise cash in the bank. When whole industries ground to a halt last year, survival depended on how long companies could survive on the money they had stashed away. "Cash is the true sign of health of a business," Crompton says. He recommends having enough money to survive at least three months with no income, but six to 12 months would be better. This goal should be prioritized and tracked quarterly, he says, along with sales and profits.
Get out of fixed contracts
"Companies should be looking to maximize flexibility so they can more quickly respond to changing conditions," says Jason Cherubini, founder of Seraphim Associates International, a financial consulting firm for startups in Washington, DC He suggests reviewing financial and workforce agreements and exploring options that would increase flexibility, such as establishing lines of credit with banks, renegotiating payment terms with vendors, considering a flexible workspace rental, and rethinking fixed labor contracts. Although the flexibility might increase costs, Cherubini says the protection it provides is worth the extra expense in the event of a disaster.
Plan a staff retention plan
In a downturn, most owners follow their immediate instincts and "dramatically cut costs in an attempt to outrun any revenue shortfall," says Phillip Kane, chief executive officer of organizational advisory firm Grace Ocean in Akron. "Unfortunately, these moves leave them entirely unable to respond to the inevitable rebound." He counsels clients to avoid gutting their payrolls and other costs, because a bare-bones staff is unable to sufficiently serve customers, let alone help the business grow. Instead, companies should focus on winning more market share when business resumes.
Plan financial security for employees
It's much easier for employees to weather emergency pay cuts if you've set them up to be financially stable. "Small-business owners need to prepare thorough financial well-being programs," says Maia Monell, co-founder of digital finance startup Nav.it in Ketchum, Idaho. "If you don't have a plan in place that helps take care of your employees and their financial anxiety, you're not going to be able to perform well as a company."
In a disaster, a strong online presence can help a business develop new sources of income. "Focus on the online 'buying journey,'" says Mark Verwoert, founder of digital marketing company Mark'd Agency in the Netherlands. Even if consumers continue to frequent brick-and-mortar stores, "90% of all customers will research your product online."
Launch low-work, high-income products and services
Melis Steiner, co-founder of BrandPartners in New York, suggests building an arsenal of high-revenue products and services that require the lightest lifts. "Times of crisis require the ability to stay light, lean, and agile," she says. Translation: This is not the time for your complex, labour-intensive pet projects. "When disasters hit, if sources of income are light on costs," she says, "you'll be operating as lean as possible."
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement