The COVID-19 pandemic brings forward unprecedented financial uncertainty. Businesses and industries are finding themselves at a loss to survive the ongoing crisis.
Fear of the economic downturns are abounding, and we are now questioning ourselves:
What could we have done to prepare better; and
What can we do to build a financially resilient business now?
What Is Financial Resilience?
Resilience is the capacity to recover quickly from difficulties and the ability to spring back into shape. Financial resilience for businesses translates as the ability to bounce back after a financial hardship. A severe economic downturn or even the inability to operate at maximum capacity, which then leads to revenue loss, can cause financial hardship.
Resilience is an ongoing, long term process that should be nurtured and planned ahead. The ultimate goal is for your business to survive any uncertain events that may impact the financial system, be it a domestic or global event such as what we are facing now.
Why Do We Need A Financially Resilient Business?
Resilience is essential today because the business environment is becoming more dynamic and unpredictable. The business system is continually being stretched and stressed due to reasons such as climate change, political uproar, technological evolution and many more.
The coronavirus crisis that we are living through now is a perfect example of a system stress. The situation we are facing now with Covid-19 is not a once-off. A close example will be SARS, which also hit unexpectedly and caused an economic uproar, albeit not as widespread as the coronavirus.
Evidently, these types of situations have happened in the past. They will happen again, which is why you need to ensure that you can protect your business from hereon. The subsequent practices you incorporate in your strategy and day-to-day activities are essential to ensure your business is financially resilient regardless of the situation.
How Do You Build A Financially Resilient Business?
Have A Clear Financial Plan
First of all, you need to have clear expectations and goals of what you want to achieve. Ask yourself what your income goals are and what is the revenue that you need to accomplish those goals.
These answers are the basis of your financial plan. Once you have these answers, you can focus on getting your list into writing and how you will get to your financial resilience goal.
When making the plan, your three options are increasing sales, reducing expenses, or doing both simultaneously. At the end of the day, you want to ensure that your business will make a profit.
Plan A Steady Growth Pace
An overnight success seems like an absolute dream to achieve. Realistically though, there are many hidden expenses in such rapid growth.
Imagine this: Your business grows enormously in a short period. Suddenly, expenses for recruiting, equipment, new location or expansion, and many more hits you. This can cause a severe hit to your finances.
An ideal situation would be having the chance to plan for a slow, steady growth where you can put strategies in place aligned with your financial forecasts. You can proactively manage your expenses to leverage against your profits strategically. This way, you can grow your business for the long term and reduce sudden bulk spending.
You do not have to over-extend your business. Remember, slow and steady wins the race.
Cut Costs And Build Emergency Fund
Once you have come up with a plan, decide on the expenses needed and what is not needed for you to achieve your goals. Look at your entire expense list and rethink what the essentials are.
For example, the new normal of working from home has undoubtedly given us leeway for office rental. Think if you still need ample office space or will your employees prefer to continue working at home, thus enabling you to have a smaller or no space at all.
Every business needs to have financial resources held in reserve. The more extended period you plan to have an emergency fund, the more financially resilient your business will be. Look at all current expenditure in your day-to-day operation. Differentiate the needs from the wants. You must be fully aware that each "want expense” is taking away the cash that you could put into your emergency fund.
Build Consistent Income Streams
One of the ways a business can create resilience is by producing a steady and stable profit stream. Invest in your most loyal clients, workers, vendors, and top-of-the-line goods and services.
What you are doing is developing and investing in a long-term and mutually beneficial partnership. Thus, understanding what your customers want and when they want it, is crucial. When you know this, you can practise it to build successful marketing strategies. Your messages would be more successful if they are more personalised, contributing to a considerable sales rise.
Conclusion
It is no longer a question of whether you should plan to have a financially resilient business. To fund all of the other facets of our business, we need sound business finances.
Take the time to plan and analyse your finances regularly to be on your way to financial resilience. You will thank yourself if and when a curveball is thrown your way in future.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ, and thus require specific legal advice. Please feel free to contact us for complimentary legal consultation.