Are you prepared for the next crisis? If the COVID-19 pandemic has taught us anything, it’s that nobody can predict what’s around the corner. However, in business, it’s vital that we try. While none of us have a crystal ball that can tell us what the future holds, it’s guaranteed that at some point something unexpected will definitely come along, and it is vital that when it does, you are prepared.

PWC’s Global Crisis Survey 2019 found organisations that had a crisis response plan in place fared better post-crisis than those who didn’t. But prior to the COVID-19 pandemic, research by Gartner found only 12% of businesses were prepared for the impact of the Coronavirus pandemic. Similarly, a survey conducted by Mercer found 51% around the world had no plans or protocols in place to combat a global emergency, such as coronavirus.

By identifying potential risks to the continuity of your business, and using them to develop a robust contingency plan, you can ensure your business not only ‘keeps the lights on’ but thrives after a crisis. Fluence Capital outlines practical guidance on how businesses can create and implement an effective contingency plan.  

Step 1: Identify the major risks and list them

Every organisation faces its own unique set of risks. The first step in creating a contingency plan is to identify the potential risks to your business, as well as assess the likelihood and potential severity of each risk to prioritise your planning efforts. By identifying and being aware of the risks your business faces, you can take proactive steps to mitigate them before they occur.

Step 2: Develop a communication plan

In a study by IBM, it was found that business continuity professionals thought that only 60% of employees would know what to do during a crisis. Having a crisis communication plan ready in advance of a disruption will reduce misinformation and instability, as well as provide employees with much-needed guidance and clarity. By planning in advance, you can identify what will be required for various scenarios and make preparations. This enables you to handle the situation right away when the actual disruption occurs so you don’t lose precious time. Include things like key contacts, procedures on how and when to share information, and with which parties. Your goal should be to have all vital information in one place so it’s easily accessible when required. 

Step 3: Implement protocols

The pandemic has made it clear that that total employee wellbeing, not just physical health, is a key component to success for businesses.  Employers have a significant role to play in protecting and supporting employees during uncertain times. Develop and implement protocols for employees, and review and readjust employee wellness programmes to ensure they align with the needs of your workforce. 

Step 4: Review overhead costs

At the start of the Coronavirus crisis, the average small business had enough cash reserves to last just 27 days, according to Harvard Business School. Controlling costs and tightening up spend is the easiest way to mitigate risk and quickly adjust to an unplanned interruption. Reduce non-essential expenses, and institute strict measures and controls. Cutting just a few of these overheads can make a serious difference to your cash flow, andfree up vital funds.

Step 5: Forecast cashflow

Having visibility over cash flow will enable efficient decision making and management of working capital in a crisis. Undertake scenario planning to better understand how much cash you’ll need and for how long. Forecasting cash flow has two critical goals:  The first, must address the immediate response to the crisis; the second must focus on normalising operations after the event has occurred. 

Step 6: Negotiate with creditors

Delaying or reducing the amount of cash flowing out of your company during a crisis is key. Be transparent with creditors and try to renegotiate rental agreements with your creditors, restructure loans. Most importantly, try your best not to borrow or increase liabilities.  Remember – Try to do anything you can do to increase the holding of cash on your balance sheet during a crisis. This will not only buy you valuable time but help insulate your business during uncertain times. 

A competitive advantage

Research by Bain from the 2008 recession found only  10% of companies studied didn’t merely survive; their earnings climbed steadily throughout the downturn and continued to rise afterward. While those that struggled had failed to make contingency plans.  “When the downturn hit, they switched to survival mode, making deep cuts and reacting defensively.”

While contingency planning can seem like a lot of hard and unnecessary work, especially when things are stable, businesses can no longer afford to not plan for the unexpected.  Being prepared for a crisis therefore presents far more than an opportunity for business owners – it is a key competitive advantage during uncertain times, empowering leaders with the information they need to make critical decisions.

Contact Fluence Capital today for guidance and assistance creating a contingency plan.