Five key considerations in a crisis

Every business is unique, and the challenges it faces during a crisis can vary widely. That’s why it’s crucial to document the steps you’ve taken before reaching out to support organizations. By doing so, you’ll provide them with valuable context that will help them understand your situation better and offer more targeted assistance moving forward. 

To make sure you’re fully prepared, there are five key considerations you need to keep in mind when your business is under stress. They will not only help clarify your current position but also guide you in making informed decisions about the next steps for your business.

1. The future impact on cash flow

Determine how the crisis will impact the week-to-week cash that flows in and out of your business. Sketching out a number of cash flow scenarios will identify what could happen in the future and help decide what level of funding needs to be considered. For these scenarios consider:

• Costs you will no longer have.
• The length of time it takes to recover and minimum sales needed to at least break even.
• Extra cuts you can make.
• The revenue you need to break even.

Each drop in sales will have a corresponding fall in variable costs, e.g. materials, cost of goods sold, but at some stage, you may find it’s uneconomic to continue with certain products and services if the fixed costs are too high. In these cases, you may have to lower your overall cost base, such as making staff redundant, moving premises or closing down less profitable product line).

With each of the cash flow scenarios, outline the decisions you expect to make to be able to still trade now and in the future.

2. The state of your supply chain

It’s not just your business that gets impacted by a crisis. Outline what’s happened to the key suppliers you rely on and identify risks to your business if they can suddenly no longer deliver. This is especially critical if you have exclusive or hard-to-replace materials or products as part of your own delivery to customers.

Develop an alternate supplier plan and consider reaching out to these businesses as a back-up if your existing supplier can’t deliver.

3. If you have raised any extra capital

Before you start to borrow and add to any existing debt, you may find spare cash within your business to tide you over. There could be machinery that you no longer need or vehicles you use on an infrequent basis which could be sold and turned into cash and leased back when you need them.

The important point in a crisis is to still be trading, even if it means selling off parts of the business to remain solvent. Other ways to raise extra capital include:

• Selling parts of the business.
• Liquidating excess inventory or raw materials.
• Re-investing your own capital.
• Finding external investors.

Go through your business to see what you don’t need and convert as much as you can to cash, without handicapping your core business.

4. Actions already taken

It’s useful to list what steps you’ve already taken to minimize any issues the current crisis has caused. This could include applying for government support, negotiating part payments with suppliers, deferring costs such as rent and interest to a later period, and amending your terms of trade to collect money faster. Possibly you need to temporarily cut hours or salaries of your employees.

Ultimately there will be key decisions to make to determine if your business can trade out of the current crisis.

5. Your future plans

You may be able to pivot your business towards new revenue streams by finding different customers or markets, develop new products or services, or find new ways to sell to your customers. Outline what you aim to implement to bring your business back to profitability.

Think also about how much additional risk and debt you feel comfortable taking on, as you will know the future potential of your business best. Decide if you need to cut your losses and exit, or if you can continue to build on your life’s work and passion.

Regardless of which actions you have taken or will take, document the changes and reach out to your bank, industry, local networks, and your investors as early as you can to help find the right support for your business.

Next steps

• Review your business's financial situation by assessing potential cash flow impacts under different scenarios. Identify cost-cutting measures and revenue goals that will help you break even or minimize losses during the crisis.
• Analyze the state of your supply chain and develop contingency plans in case key suppliers are unable to deliver. This might include finding backup suppliers or adjusting your product/service offerings to manage supply disruptions.
• Assess whether you can raise extra capital through asset sales, liquidating excess inventory, or securing external investment. Prioritize actions that allow you to continue trading while preserving your core business.
• Keep a record of the steps you’ve already taken to mitigate the impact of the crisis. This includes any financial, operational, or staffing changes made, as well as any support or relief measures you’ve pursued.

Dealing with a crisis requires a strategic approach and thorough planning. By keeping these considerations in mind, you’ll gain clarity on your current situation, identify potential risks, and position your business to move forward with resilience. Remember, taking early action and documenting your decisions can help you make informed choices and secure the right support to weather the storm.

The content provided in this material is for informational and educational purposes only. It is not intended to be, and should not be construed as, financial, legal, or investment advice. The information is of a general nature and does not address the specific circumstances of any particular individual. For personalized advice regarding your financial situation, please consult with a qualified professional.