Businesses are all being affected differently by the current coronavirus pandemic. Many are experiencing a steep drop-off in business activity and revenue. Some businesses have stopped operating altogether. But they all have one thing in common – times of crisis require a plan for crisis management, especially when it comes to finances.
Planning for a crisis will not prevent the crisis from occurring; crisis management is intended to mitigate the impact of the crisis on business finances. It’s analogous to your physical health. Planning for a healthy lifestyle doesn’t prevent illness, but it can reduce the duration and severity of the illness.
Businesses should follow these three steps to mitigate the impact of a crisis on their finances:
- Assess Financial Position
As soon as a crisis occurs or appears to be imminent, business owners should immediately assess overall financial positions related to liquidity and payment commitments. Up-to-date, complete and accurate financial recordkeeping and a monthly review of financial reports will arm business owners with the knowledge to adapt quickly. Immediately knowing the financial status of your business is immensely important, especially during, or leading up to, a crisis.
- Conserve Cash
During times of crisis, cash is king. Even more than usual. When business activity slows down or stops, businesses are less able to predict revenues and cash flow, resulting in a reduced ability to forecast how long cash balances will last. The only thing to do in a crisis is to hang onto cash to avoid missing crucial bill payments, like rent and payroll. Also, verify the availability and interest rate for any existing signature loans or lines-of-credit that could be needed to keep the doors open during a crisis.
- Scrub the Budget
Assuming that a crisis was not baked into this year’s budget – and let’s face it, that almost never happens – many businesses probably budgeted for expense and revenue items that no longer make sense, under the circumstances. Examine each budget category for both revenues and expenses to identify what items will not occur, increase, decrease, or need to be added based on the type and anticipated duration of the crisis.
Businesses that are affected by a crisis can take steps to mitigate its impact on business finances. Assessing the business’ financial position, conserving cash and scrubbing the budget are three steps that businesses can take to adapt quickly to a crisis and withstand a steep drop-off in business activity.