There has been a lot of discussion regarding small company survivability and business continuity since the epidemic began two years ago. While we hope that such circumstances will not reoccur very soon, other calamities, whether economic or natural, will occur at some point.
What makes a small business resilient? How can small firms become more resilient? We will look at how to prepare your company for unforeseen difficulties and how to strengthen it.
What exactly is financial resilience?
Financial resilience refers to a company’s capacity to adapt, survive, and grow in the face of unforeseeable occurrences that are difficult to forecast from the beginning. Financially resilient organizations find methods to develop and invest over time, even when their regular income streams are threatened. They accomplish this by monitoring their accounts on a regular basis, recognizing and resolving any resource drains, and discovering new ways to increase their margins.
Strengthen your financial resiliency.
Planning ahead is essential for financial resilience, but how can you plan for unforeseeable events? Our financial resilience checklist includes four concrete strategies to strengthen your financial position so that you can endure most possible shocks.
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Recognize and manage your financial flow
Financially robust organizations keep an eye on their finances, tracking down late payments, automating routine accounting tasks, and identifying savings to reduce operating expenses.
A basic cash flow analysis will help you find bottlenecks by comparing your unpaid purchases to your total sales due at the end of each month. If your total unpaid purchases exceed your total sales due, you’ll know where you need to decrease expenditures, where you need to increase your sales efforts, or which of your clients are delayed payers.
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Find new sources of revenue.
Financially robust businesses discover methods to keep expenses down while exploring new revenue streams. A pivot was the only option for NEMI Teas, a specialty tea and social impact company, to stay in the black. The company’s purpose is to place refugees in employment by providing them with on-the-job training at external events and in the company’s own warehouses. “Covid took off 95% of our business overnight,” says Pranav Chopra, the company’s founder. “Because we couldn’t hire our refugees full-time, we had to pivot.” We placed them in positions with our café partners while continuing to pay them.”
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Determine what to invest in and how you will pay for it.
It’s critical to maintain your budget updated so you can utilize it to make business decisions that keep you nimble. It can also assist you in identifying possible financing shortfalls and methods to fill them in advance. According to UK Credit data, many SMEs assume they would be unable to acquire finance; yet, 88% of firms that apply for expansion funding are successful.
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Make use of digital technologies.
Businesses were able to interact with clients through video conferences, for example, or take and fulfill orders using technology such as apps, thanks to increased digitization. One intriguing conclusion from the poll was that successful organizations with a digital strategy did not wait for the epidemic to get started. They were already ahead of schedule.
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Make an investment in your digital footprint.
You don’t have to have an ecommerce business, but small firms who can interact with a larger audience online fared better than those that couldn’t during the Covid-19 problem. That may include focusing on developing a social media presence on one or more platforms, or creating an email list and routinely contacting your consumers. It can not only help you locate new consumers, but it can also help you strengthen relationships with existing ones.
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Keep your financial, time, and energy margins intact.
Small business resilience is typically defined by the discipline of maintaining margins—specifically, financial, time, and energy margins. Create a financial reserve or obtain credit to deal with periods of low cash flow. Concentrate solely on critical business duties and eliminate any other distractions. Then, enlist help and form a team that will allow you to concentrate on what only you can do.
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Create checkpoints to keep you informed and aware.
Checkpoints must be included into the framework of your activity. They may be as basic as a monthly repeating question on your calendar at a specific time: “What did I do in the previous 30 days to preserve my longevity?” Because events happen so rapidly, it is easy to find oneself further down the road and less educated than you were at the start. Checkpoints force you to think.
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Quickly collaborate and learn from mistakes.
It’s one thing to talk about resilience; it’s quite another to be resilient. Small to medium businesses may not always benefit from larger companies’ tactics, but there are certain distinct advantages to being small. The ability to immediately engage with your team while addressing challenges helps both sides to learn from mistakes fast, resulting in increased self-efficacy and momentum.
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Make a record of your procedures and roles.
Documenting the processes for operating every area of the organization and how to fill any function is a basic but often overlooked exercise that businesses of any size can do to improve resiliency. This guarantees that vital duties are not overlooked if a key person unexpectedly departs or if business grows, necessitating the hiring of more employees.
How is the financial health of your small business?
During the pandemic, small companies learned the need of maintaining financial health in order to weather the slump.
Here are several indicators of small company health:
Profits
Sales are how companies create money, and you should keep track of them on a regular basis. Consider if your company’s revenues are expanding or declining. How reliant is your company on certain customers? What if one of your main clients discontinues doing business with you?
Credit
Your credit reports show how successfully you or your company has managed past and present financial responsibilities. Lenders frequently evaluate personal credit scores and/or company credit scores or reports to determine the viability of the firm. Make sure you go over yours.
Financials
Your company’s financials can provide valuable information into its financial health. If you aren’t already, you should consider checking the financial statements listed below on a regular basis:
- Income statement/profit and loss statement
- The balance sheet
- Statement of cash flows
An A/R aging report can notify you of how long it takes for your clients to pay you.
