Owning a business requires planning for the best while preparing for the worst. Natural disasters and economic crises alike can halt operations, drain your resources, and force you to make hard choices. Certain disasters—like the coronavirus—are black swan events, meaning no one could have predicted them. Still, it’s critical to develop a plan to get your business in shape for crises of all kinds.
Here are seven valuable lessons on preparing your business for a future disaster.
1. Conduct annual risk assessments
Conducting annual risk assessments can help you identify threats to your business, including potential financial issues or office safety hazards.
“The ability to prepare for a crisis starts with the ability to see the potential scale of the crisis,” said Christine Matzen, the founder of Oak Street Strategies. When you’re gauging risks, evaluate these three areas.
Finances: Review your cash flow, expenses, debts, and sales forecasts to check your business’s financial health over the next six months or year. You may notice red flags or areas you can improve upon.
Technology and equipment: Data breaches and other cybersecurity threats can damage your business’s reputation and result in lost profits. “Technology is constantly evolving,” so it’s important to audit your company’s security systems, said Rob Stephens, a CPA and the founder of CFO Perspective. You may need to install a business-grade network security appliance, for example, or start using multi-factor authentication for employee accounts.
Office: Get your building inspected for hazards, and consider your business’s risk factor for disasters like hurricanes, floods, and earthquakes. You may even want to consult a local firefighter for preparedness tips, Matzen said. “They can also inform you of how their agencies work during a crisis, so you will know about triage centers or other crisis plans that you can incorporate.”
2. Train employees to handle different situations
Once you pinpoint the risks to your business, work on developing an employee training plan.
Give basic CPR and first aid training to your employees first, Matzen said. “In addition, you should always have employees trained in your escape plan, disaster preparedness, and any hazardous materials information.”
It’s also crucial to cross-train employees to ensure at least three people know how to do every job within your company, Stephens said. “At a minimum, have a set of procedures for all your critical processes saved in a location that you can access in an emergency.”
Teaching employees how to adopt new roles and adapt to different working conditions can prevent downtime during a disaster.
3. Outfit your business with emergency supplies
Stocking your business with emergency items helps minimize damage and save lives. Consider gathering necessities like a fire extinguisher, first aid kit, medication, and sustenance.
“You should always consider keeping three days of shelf-stable food and water on hand for all employees, and possibly customers should a disaster strike that requires you to shelter in place,” Matzen said.
Other helpful items include:
4. Build a cash reserve
The financial implications of natural and economic disasters can be massive. Depending on the situation, you may have to renovate your office, replace damaged inventory, issue refunds to customers, or temporarily shut down.
That’s why “businesses should keep a cash reserve equal to three to six months of their expenses,” Stephens said. “Three months is the bare minimum. Six months provides a healthy reserve that can be tapped for unexpected opportunities.”
Start by adding your monthly costs—including rent, utilities, mortgage payments, loan payments, payroll, and inventory—to see where you can cut expenses. If the majority of your cash goes toward mortgage payments, for example, see if you can sublease a part of your building to another business. Or check your inventory to see if you have dead stock tying up your cash flow.
Building a cash reserve takes time, but making strategic changes and sacrifices can pay off in the event of a disaster.
5. Prioritize your workforce
Employees are the lifeblood of any business, so it’s crucial to put policies in place that address their needs during a crisis.
“In a disaster, your employees’ primary concern is taking care of their families,” Stephens said. “Find ways to help them take care of their families so they can then turn their attention to helping your company.” That might mean offering work from home options or providing child care, he added.
It’s also a good idea to review your paid leave, health insurance, and sick time policies to see whether or not you can offer more options or flexibility. Covering spousal health insurance, for example, or offering hazard pay to workers in tough conditions can make employees feel valued and motivated during difficult times.
6. Diversify your offerings
Disasters can derail normal operations, but finding ways to continue catering to customers or clients can help you stay afloat. Start by identifying which area of your business drives the most profits, whether it’s a product, service, or passive revenue stream. From there, brainstorm ways you can double-down on that area or change it entirely to solve a customer issue.
“Think outside the box,” Matzen said. “This may mean that you use your resources to pivot in the market to meet a new need that arises to weather the storm.”
If you run a brick-and-mortar stationery shop, for example, consider building an online store in case you can’t conduct business in person. Or, if you manufacture phone cases, consider what kinds of other products you could create using the same materials.
Being adaptable is key to surviving difficult periods and evolving as a business.
7. Rebuild with the future in mind
Disasters are learning opportunities. Instead of burying your head in the sand, think about which strategies worked well in the face of disaster, including the policies that protected employees or tempered your financial losses. Next, acknowledge the areas where you weren’t prepared and ask yourself what you could have done to alter the outcome, Matzen said.
“It is very important during this stage that you fill in your gaps of knowledge by consulting experts,” she added. Reach out to your accountant, talk to your lawyer, and ask your customers what they need from your business.
Preparing for disaster can help you stay afloat, retain employees, and protect your profits. If you’re currently struggling with financial losses due to the coronavirus, check out our comprehensiveCOVID-19 guide and resources.
Disclaimer: Fundbox and its affiliates do not provide financial, legal or accounting advice. This content has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal or accounting advisors before engaging in any transaction.