If you had an established business and survived the financial crisis of 2008, you probably already understand the importance of having a business continuity plan. Those business owners without a plan in 2020 are currently struggling to ride out the economic crisis caused by the COVID pandemic. They are now realizing the importance of having one. In the face of a natural disaster or economic downturn, it might be the only thing preventing a business from closing its doors forever.
What is a Business Continuity Plan?
Simply put, it is a plan developed prior to a crisis that will sustain your business until the crisis is resolved. It consists of a series of actions or strategies meant to help you prevent or recover from any threats to your business as a result of the crisis.
Decrease the Outflow of Cash
How you reduce your outflow of cash is important. You don’t want to cut spending too drastically or in areas of your business where spending cuts would do more harm than good. Evaluate all existing projects. Put those that aren’t necessary on hold and avoid initiating any new projects. Review all expenditures and determine which could safely be reduced or eliminated until the crisis is over.
If you operate multiple locations, temporarily consolidate operations to reduce overhead expenses such as utilities and payroll. You may even want to close down some of your locations permanently. Selling one or more locations would also eliminate mortgage, property taxes, and insurance, and depending on your equity, it may even generate an influx of cash. Reducing the amount of inventory you keep on hand or negotiating partial payments with your supplier can also be a good way to fuel your business continuity plan.
It’s important to remember that your suppliers may also be experiencing difficulties during a crisis. You should research backup suppliers as part of your business continuity plan. Place orders with them instead of your regular suppliers from time to time. This will help you establish relationships that could be beneficial during a crisis.
You will also need to assess the potential safety risks to employees and intellectual property. Evaluate the cost of ensuring a safe environment for your employees and customers. This includes any changes to business processes. Some examples are contactless customer service or network security for a remote workforce.
Maintain Cash Inflow
In addition to making sure your supply chain will be uninterrupted, evaluate the ability of your customers to make their payments to you. Some may be in a better position than others to do so. Your business continuity plan should include making provisions for this such as accepting partial payments. This will help maintain your cash flow and help your customers remain in business.
Reduce Payroll Expenses
This is often the first place business owners look to cut expenses. However, before implementing any sweeping layoffs or furlough, look for alternatives such as reduced hours,or remote work. You want to retain employees that are the core of your workforce and vital to daily operations. This will eliminate the possibility of them finding other employment causing you to have to hire and train new candidates when things return to normal.
Build Lender Relationships
A key component of a business continuity plan is to have some capital set aside for unforeseen emergencies. There are also often federally funded disaster recovery loans. Unfortunately, these may not always be enough to see a business through a crisis and a traditional bank loan may be difficult to obtain during an economic crisis. A successful business continuity plan includes alternative funding sources and it can be helpful to build a relationship with them before a crisis hits.
CFG Merchant Solutions offers a variety of funding options and we never stop funding. Whether it’s a merchant cash advance, invoice factoring, equipment financing, or any of our other funding options, we will guide you in choosing the perfect solution for your individual business needs. Our team brings to the table more than 60 years of institutional investment banking experience in the credit, commercial finance, and capital markets. Contact us or apply online today.