Very few businesses have emerged from the COVID-19 pandemic unscathed. Although huge swathes of the economy have reopened in recent weeks, your company may still be hobbled by the pandemic. Although the economy is experiencing tentative growth, many businesses are still reeling from a double-dip recession. The past year has proven a crucible for many SMEs all over the world. Congratulations on surviving this financial crisis… but how well prepared are you for the next?
Here are some ways in which you can navigate your path to success during a financial crisis and avoid joining the ranks of companies that have been forced to close their doors.
Identify the cause of the crisis
This may seem like a no-brainer, but to be able to react to a financial crisis, you need to understand the cause. Whether internal or external, the better you know the cause of the crisis, and its implications for your business, the better prepared you are to implement solutions.
Financial analysis should be an integral part of your operations, and can help you to identify the causes of internal crises. These can range from failing to take action against consistently late-paying clients to mixing business and personal finances.
Identify and eliminate wasteful spending
A financial crisis doesn’t necessarily mean you should tighten the purse strings across the board. Doubling down on your investment in the right places can be integral to your survival. But you do need to identify and eliminate areas of excessive and wasteful spending.
Ironically, this may require some upfront investment. For instance, you may want to look at ways to automate manual processes, or invest in software to streamline your operations. A crisis is a golden opportunity to be honest about your tech and ask yourself whether it’s integral to your operations, or just helping you to keep up with the proverbial Joneses.
Centralising spending and reviewing departmental purchase requests should also be part of your strategy in eliminating unnecessary spending and improving liquidity.
Diversification can be instrumental in helping your business to not only survive but prosper in times of crisis. During the pandemic, for instance, Dyson switched from making vacuum cleaners to medical ventilators. Restaurants survived and even thrived by adapting and increasing their takeaway offerings.
You may also want to adapt your marketing to diversify and grow your clientele and expand your reach into new markets.
Keep a close eye on your cash flow
In fair weather or foul, your business's cash flow is a huge part of its financial health. But in times of crisis, cash flow needs to be monitored even more closely. Use your accounting software to your advantage, automate payment collection, and track income and expenditure across all departments.
Flying blind can only make you more vulnerable.
Don’t let your business plan stagnate
An ounce of prevention is worth a pound of cure. While the above measures will help you to navigate your way through a crisis and mitigate its effects on your business, adapting your business plan can help to make it recession-proof.
Many ambitious startups leave their business plans to gather dust once they’re up and running. But a business plan isn’t just something you flash to banks or investors to secure funding. It needs to be treated as your modus operandi, and it needs to be tweaked and adapted constantly to ensure it’s still fit for purpose in an ever-changing commercial landscape.
We can help
If you’re interested in finding out more about financial crisis and risk management, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.