The world of business is, increasingly, an unpredictable one. Technological change, an increasingly hostile tax environment, and broader macroeconomic trends can all provide obstacles to business performance.
If you want to hurdle these challenges, and others, then you’ll need to be financially resilient. How can you do this? There are three worthwhile strategies to consider.
Establish and Maintain a Strategic Cash Reserve
Liquidity matters, whatever the size of your business. A reserve of cash will allow you to pay your staff, and your suppliers, even if there’s an interruption to your incoming cash. Economic events and crises can be disruptive, and having a supply of cash set aside for emergencies can help you to cope with the strain.
As a rule of thumb, you’ll want to set aside a segregated operational cash reserve that will cover your rent, payroll and utilities in the event of a crisis. This will effectively cushion the blow of the emergency, and provide you with the breathing space that you need to recover.
Invest Systematically in Scalable Technology and Automation
If your business isn’t automating, then it might suffer a major disadvantage relative to its rivals. Of course, some businesses might have greater scope for automation than others – but technological investments that allow workers to perform better and introduce more value are always worthwhile.
Setting aside a specific area of your budget for upgrades can often lead to major gains. But it’s important that you do this in a way that’s resilient and that either reduces the need for manual labour, or that helps workers to increase their processing speed.
Implement Robust Scenario Planning and Stress Testing
True resilience means not only being able to absorb the impact of unexpected events, but also being able to anticipate them. It’s often better to sidestep a problem than to meet it.
Of course, not all disasters can be anticipated. But many can be. Your financial planning should be an ongoing process of contingency planning. A good approach it to imagine that a disaster has struck, and then to imagine why your business has been effected. This is what’s called a ‘pre-mortem’, and it’s a powerful means of dealing with institutional biases and blind spots.
Involving consultants and auditors from outside the company can often be a worthwhile means of spotting problems that would otherwise have eluded you. In many cases, these organisations might help you to some up with solutions, too.
The more likely the problem, and the greater its potential impact, the more consideration it might deserve. Try to come up with many models for different scenarios. In many cases, these exercises might persuade you to take action proactively, before you’re forced to do so.