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 Craig, Plinqit
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 Gonzalez, Engineered 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 Choucair, Trintech
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 Goodman, Easier Accounting