Small business owners may often find themselves basking in the glow of success during prosperous times, putting aside our contingency plans, and allowing complacency to settle in. It's easy to assume that the sun will keep shining – until it doesn't.
In business, one must expect and be prepared for the unexpected.
How does your business deal with load shedding and water outages?
What would happen if you suddenly lost an important client? Or a business partner? In times of crisis, some businesses die, some survive, and others thrive; the crucial differentiating factor is their level of preparedness.
"We don't learn CPR hoping we will use it. We learn it because there is a tiny probability of us using it at some point. And that is enough to plan for it," says Sandra Beswick, director of financial and strategic advisory company Fluence Capital. "The same applies to running a business; preparing for whatever may come should form an integral part of every SME's strategy. Having the right measures in place (always) helps businesses to keep treading water in the toughest times.”
This lesson is especially crucial in South Africa’s unpredictable business landscape. Businesses of all sizes are scrambling to keep the lights on while weathering economic uncertainty, limited access to credit, spiralling inflation and interest rates, soaring fuel prices, and high levels of competition. According to research by the University of Western Cape, South Africa has one of the highest start-up failure rates in the world, with 70% to 80% of businesses failing within five years.
A survey by Deloitte revealed that having a crisis management plan can reduce financial fallout. While 31% of organisations with a crisis plan report that a recent crisis had negatively impacted finances, this number jumps to 47% for those without a plan. It’s clear that proactive action far outweighs a reactive approach. The key to longevity and resilience lies in charting a well-prepared course that accounts for various potential scenarios – even if they never happen. By identifying risks and using them to develop a robust contingency plan, you can empower your company to stay afloat and emerge stronger on the other side.
There’s more to crisis planning than saving for a rainy day. Your crisis plan must consider what could happen, what might happen, and even what may never happen.
Here are five key considerations to factor into your contingency plan:
1. Ask the hard questions
The more quickly and clearly you can identify your position, the more empowered you will be in working towards long-term business viability.
[blob] Is your strategic plan documented and continually reviewed to ensure you remain adaptable?
[blob] Do you have accurate and realistic forecasts and cash flows?
[blob] Are you ‘bankable’, and are your debt ratios low?
[blob] Do you have a plan for future income and other funds?
[blob] Are you working with new clients and repeat customers?
2. Understand the risks
Improving risk culture and strengthening the integration of resilience into business strategy processes are some of the most important actions businesses should take. By identifying and assessing the likelihood and severity of the unique risks your business faces, you can take proactive steps to mitigate them before they occur.
3. Develop a communication plan
Remember the fire drill – when the whole school was called to attention to practise safety measures? Schools still do this today, and why should your business be any different? Ask yourself: do my employees know what to do during a crisis? A water crisis, a power crisis, a theft crisis, a debt crisis, a client crisis? Creating a detailed crisis communication plan that outlines how your business will respond to different scenarios reduces misinformation and instability, and provides employees with much-needed guidance, safety and clarity. Your plan should include key messages, key contacts, media relations strategy, marketing strategies, financial saving strategies, internal communication procedures, and guidelines for responding to customers and stakeholders. In fact, why not get your exco team in on the bill, and have your company draw up their collective thinking on the crises at play? This promotes a culture of accountability and company resilience. Regularly review and update this plan to ensure its relevance.
4. Get on top of your cash flow
In 2021, the top reason that start-ups failed was because they ran out of cash, which means that keeping a close eye on your cash flow is vital. Beswick says: “Do what you can to ensure that cash flow is the driving force of your business and maintain a daily cash flow forecast. It’s not pretty or fancy. But it’s the truth. And it’s a fundamental rule to live by that can help keep you out of trouble when times are tough.”
5. Know when you need help – and ask for it
Starting and growing a successful business in South Africa involves time and hard work. Throughout this process, you may require the assistance and guidance of experts, such as legal advisers, funding experts, and business turnaround practitioners. Don’t be afraid to reach out for help when you need it.
“Too many companies wait until the last minute to seek help. And by that time, often, it’s too late. The denial people resort to when facing trouble can be the very thing that renders impossible any chance for a return to viability. But the sooner an SME acts to turn the business around with what finances and resources they do have, the better their chances of survival,” says Beswick.
Competitive advantage
While contingency planning can seem like a slog, especially when business seems stable, the truth is that companies must plan for the unexpected. Being prepared for a crisis is a key competitive advantage during uncertain times, empowering leaders with the information they need to make critical decisions. As the global business landscape continues to evolve, Beswick’s message is clear: "Be prepared. Be resilient. And be empowered with the information needed to make critical decisions in uncertain times. Waiting for the fire alarm may be just too late."
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