Coronavirus Operations Memo: Click Here | Magnus documents: Form ADV | Form CRS | Privacy Policy

16 Essential Elements Business Leaders Should Include In Every Financial Disaster Plan

- July 8, 2022

View on Forbes.com

The Covid-19 pandemic opened many business owners’ eyes to the financial challenges that can hit them during a national or global crisis. If they didn’t already know, leaders are now very aware of the need to prepare for the fallout of economic issues, whether it’s supply chain delays, a lack of key talent or inflation.

To that end, it’s essential for businesses to have a robust disaster plan in place to contend with the next financial crisis. Below, 16 Forbes Finance Council members share one crucial element your plan should include and why it’s such an important base to cover.

1. Strong Digital Infrastructure

In today’s distributed business environment, a crisis could arise due to financial events, security threats, the weather or any array of reasons. Having a digital infrastructure that provides 24/7/365 accessibility from any location, ensures data security and allows for the continued execution of critical business processes under any scenario is the baseline ingredient for a robust disaster recovery plan. – Robert Mallernee, Eton Advisors

2. A Detailed Budget

A crisis is a question of when, not if. Businesses must have a well-strategized, detailed budget to follow. A crisis will cause deviations from what has been planned, but a budget allows a business owner to understand the preset baseline that needs to be targeted with changes being made in response to a crisis. – Douglas Carpenter, Comprehensive Hospitality Solutions

3. Cash Reserves

Cash is king! It’s paramount that all business owners plan in advance for downward cycles and unforeseen events by protecting their cash flow and liquid assets. All businesses should have cash reserves for bills, working capital and business lines of credit to weather any storms. Small-business owners should leverage existing resources before committing business and personal reserves to a challenge. – Luz Urrutia, Accion Opportunity Fund

4. Sufficient Margins And Efficiencies

Build for the upside, plan for the downside. At any point in the business cycle (which goes up and down), have an eye toward the future, actively investing in green shoots. At the same time, ensure the engine that is powering growth has sufficient margins (and efficiencies) that can be tapped into when crises happen. – Pawan Mehra, cKers Finance

5. A Line Of Credit

Covid represented a new crisis trigger that previously wasn’t on any board contingency plan. Company boards and management teams need to ensure they have access to a line of credit and proper contingency plans in place for 90 to 120 days of no revenue coming in, in case of a shutdown such as we experienced during Covid. The government is unlikely to provide relief such as the Paycheck Protection Program again, and businesses need to prepare for survival. – Patrick Galleher, Boxwood Partners

6. A Plan For Cutting Costs

Have a strategy in place for cutting costs, and stay focused on the expenses and mission-critical operations that drive revenue. When cutting costs—whether by renegotiating a lease term or loan repayment options—ensure you have the right team. A team of reputable experts, including attorneys, accountants and advisors, can help you renegotiate contracts, loan terms, insurance costs and more. – Kathleen CraigPlinqit

7. A Plan For Cashless Transactions

Covid altered the way businesses perform. Retailers shifted toward online operation, and catering businesses relied on delivery sales. Cashless transactions also became the norm; managing revenue, banking and supplies through efficient operations became crucial for daily business. Migration into stablecoin treasury could optimally prepare a business for competitiveness in the new era of blockchain technology. – Jonathan De Wet, Zerocap

8. Annual Plan Reviews

Disaster planning can be viewed as a constantly evolving effort. We counsel leaders to document a plan of action for disasters or significant negative events. Once it’s documented, review and reconsider the plan annually to stress-test it and challenge assumptions. Having this plan ready in times of crisis will reduce stress and support a thoughtful and unified response. – Jennifer Eubanks, CPA Department

9. A Business Savings Account

Always plan for the unexpected! I recommend business owners start saving as early as possible. Contributing a manageable percentage of their earnings to a business savings account is a small but effective way for entrepreneurs to safeguard their business, provide peace of mind during emergencies or manage unforeseen expenses. – Jenn Flynn, Small Business Bank at Capital One

10. Updated Technology

Being up to date with technology will continue to be one of the main differentiators between those who thrive and those who fail in a crisis. This pandemic showed us that harnessing the latest technology can help businesses operate remotely and stay in touch with clients and colleagues. Having secure and encrypted Zoom, Teams and portals allowed us to survive and thrive. – Aviva Pinto, Wealthspire Advisors

11. Optimized Personal And Business Credit

Ensure you have really good personal and business credit. This will allow you to borrow cheap money to use as leverage. Accessing money when you don’t need it is easier than trying to get it when you are in a desperate time. Get access to money now and have it in your back pocket for the next financial crisis. – Daniel Blue, Quest Education

12. Access To Capital

As a business mentor of mine always says, “Access to capital is easy when you don’t need it, impossible when you do.” Business owners should take steps to build additional access to capital when the environment is good—don’t wait for a challenge to hit. Revisit access to capital, such as lines of credit and cash reserves, when the sun is shining. – Trevor Wilde, Wilde Wealth Management Group

13. Broader Insurance Coverage

Following the recent global pandemic, many businesses have found that their property and casualty insurance policies do not provide protection from business losses resulting from a pandemic. Businesses with discretionary capital should develop their own customized risk-management program, which can provide broader insurance coverage with fewer exclusions at a more affordable premium cost. – Michael S. Schwartz, Magnus Financial Group LLC

14. A Strong Relationship With Your Bank

Covid demonstrated the importance of having a solid backup plan and emergency strategy for your business. Establish a relationship with your bank and know who to call when things get complicated. This could be crucial in the event that your business needs urgent access to funds or other services. Additionally, ensure your CPA firm is ready and aligned with your strategy and keep open, clear lines of communication with them. – Julio GonzalezEngineered Tax Services Inc.

15. A Comprehensive Forecasting Process

While we cannot always predict a financial crisis before it hits, a comprehensive business forecasting process, bolstered by healthy budgeting best practices, is critical for those preparing for any unforeseen financial risks that may lie ahead. By focusing on cash flow and prioritizing paying off debts, businesses can better ensure access to capital when it’s needed most. – Omar ChoucairTrintech

16. Impulse Control

Cash reserves are necessary. Six months’ payroll for key roles and major expenses should always be set aside. But the best advice would be to control your impulses. We see too many business owners deplete their reserves for opportunities that “can’t lose.” Prioritize hitting those reserve goals before you let your impulses push you into taking on big, shiny investments in thriving economic times. – Kale GoodmanEasier Accounting

DISCLAIMER

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest and do not reflect any management fees, transaction costs or expenses.

The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.

Investment advisory services offered through Magnus; securities offered through third party custodial relationships. More information about Magnus can be found on its Form ADV at www.adviserinfo.sec.gov.

TERMS OF USE

This report is intended solely for the use of its recipient. There is a fee associated with the access to this report and the information and materials presented herein. Re-distribution or republication of this report and its contents are prohibited. Expert use is implied.

DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.