Since the pandemic, “expect the unexpected” has become less of a cliché and more of a mandate for businesses. From steep dips in revenue to high employee turnover, big jumps in insurance premiums, new regulations and more, business leaders must be ready to safeguard themselves against financial losses in a fast-changing world.
But even if business leaders know these events are coming, they usually don’t know exactly when—so how can they prepare? Below, 12 financial experts from Forbes Finance Council share ways companies can guard their finances against unwelcome “surprises.”
1. Regularly review budget and cash flow forecasts.
An understanding of financial variance needs to be table stakes for businesses as we recover from the pandemic. This includes building mechanisms for dynamic budgeting that expose pressure points and create an opportunity for businesses to optimize for cash. Budgeting and cash flow forecasting can no longer be static annual or biannual exercises; they need to be tested periodically for systemic fault lines. – Abhinav Tiwari, Owl Capital Group
2. Diversify your revenue streams.
Businesses should always be on the lookout for new ways to build revenue through additional revenue streams. It might be through an additional service you can offer, making creative adjustments to your current business model or even something as simple as leasing your extra office space. If you diversify your revenue streams, you can mitigate future risks. – Charles Carey, CIG Capital
3. Ensure you have access to emergency funds.
Be deliberate in setting aside an emergency fund. As they say, when it rains it pours. Anticipate that things will not get better fast, and try to shore yourself up with funds for three to six months. If this isn’t enough, there is also always the option of a line of credit. This can help level out the peaks and valleys of unexpected events. – Lori Moes, DJM Design CAD & Coordination Services Inc.
4. Build models for different market conditions.
Build scenario-based financial models: a high case, low case and a baseline. This will help ensure you have enough runway to adapt and pivot as market conditions fluctuate. Have a strong finance team. Looking at your numbers 30 days after the month’s end in a puzzling P&L from outsourced accountants won’t cut it. Strong ownership and accountability should be built into company culture. – Joseph Garafalo, Mosaic.tech
5. Continue to make and nurture connections.
Being an active communicator with clients, employees and core service providers has been key. Communication and our ability to continue to make human connections have been essential to sustaining personal and business success. Those who have done this well likely survived the many business challenges that emerged from the pandemic and have set the stage for even greater success in 2021 and beyond. – Robert Smith, Sage Advisory Services
6. Have ample credit at the ready.
Every business needs to work toward having ample credit that’s ready to use. Ideally, this would be in the form of a sizable and flexible line of credit, but even a handful of credit cards can help younger businesses. Ideally, your credit line should be able to cover two months of expenses. – Joseph DiSanto, Play Louder
7. Regularly review your expenses.
Never get complacent about cash flow. In good times and bad, regularly review expenses for waste and inefficiency—specifically subscription services. As consumers get smarter, service providers regularly come out with new, more customizable à la carte packages for small businesses. – Megan Lezar, QuadCap Wealth Management
8. Build trust with your team.
Teams can take a hit much better than individuals. The old saying is that shared joy is double joy and shared sorrow is half sorrow. When teams share the burden of hard times, they get stronger. Now is the time for leaders to be transparent while also being hopeful. Your team could save your business from the next big hit. – Brian Henderson, Whitnell
9. Cross-train employees to improve operational efficiency.
With a shift to remote work and/or high turnover, leverage your greatest asset—human capital. Cross-train employees into other functional areas and generate operational efficiencies. Employees will lean on each other via Zoom and Slack, and it is up to employers to identify how to maximize these new mediums to engage talent. Simply watching another employee’s screen can teach new productivity hacks. – John Tytko, Caremerge, Inc.
10. Get help from your banker and accountant.
In 2020, we learned that preparedness is essential for weathering storms, and the outlook for the next several months is challenging. I encourage business owners to establish a financial plan and safety net now through a business savings account, low-rate line of credit or business credit card. Business bankers and accountants are great partners in helping identify levers for cutting costs and generating revenue. – Jenn Flynn, Small Business Bank at Capital One
11. Focus on getting paid by your clients.
Monitor your receivables like a hawk, as well as the financial health of your major clients. Set expectations with clients on how and when you expect to get paid and be willing to turn off service if payment stops. Minimize your receivable exposure by avoiding “chunky” payments where you put in a lot of work and get paid at the end. – Aaron Spool, Eventus Advisory Group, LLC
12. Keep on innovating.
Innovation is the key to keeping your business afloat. Thrive on continuous innovation and disruption. Don’t be afraid to hire people who think differently, and learn from their unique perspectives. The “break, listen and learn” culture is a gamechanger that will foster innovation and ensure your company will thrive and prosper. – Eric Solis, MovoCash, Inc.