14 Smart Strategies To Safeguard Your Business From Unexpected Financial Setbacks

14 Smart Strategies To Safeguard Your Business From Unexpected Financial Setbacks

It’s always safest for business owners to expect the unexpected, especially in the era of Covid-19, economic uncertainty and political unrest. While no one can predict everything the global marketplace may throw at them, surviving and thriving in times of volatility becomes easier when you have a plan in place to strengthen your position in the face of difficulty or even pivot if needed.

Protecting your business from the effects of a sudden financial setback—such as employee turnover, a spike in insurance premiums or a rise in materials costs—may include strategies such as building up your capital access or diversifying your revenue streams. Here, 14 Forbes Finance Council members share their advice to help leaders safeguard their businesses in times of unexpected financial loss.

1. Keep Money In A Business Savings Account

It can be difficult to juggle setting aside funds with managing everyday expenses, but keeping money in a business savings account—rather than a checking account—can help entrepreneurs build their business emergency fund. Start small by setting aside a small percentage of earnings, and as savings start to grow, slowly increase that percentage so that you are prepared for surprises. – Jenn Flynn, Small Business Bank at Capital One

2. Include Stretch And Disaster Scenarios When Budgeting

This is the heart of financial planning and analysis. Building out a budget is about more than just budgeting P&L. You have to look at the impacts that capital spending and debt service have on cash flow and the balance sheet. Budgets should include stretch and disaster scenarios to see where the weak points are. Then use that data to plan accordingly. – Glenn Hopper, Sandline Global

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

3. Create Regular Scorecards From Collected Data

The short answer is data. Company leadership must keep a finger on the pulse of the organization by collecting (preferably via automation) predictive data that shines a light on potential issues so they can intervene proactively, rather than reactively once the financials are cleaned up. A weekly/monthly/quarterly scorecard is integral to this practice. – Justin Sanderson, Sanderson Wealth Management

4. Ensure Each Team Member Knows The Impact They Make

Determine and share the direct impact an individual employee can have on the company results. Map and share the link to the big picture, tracking and rewarding for employee direct performance. Each employee (from the bottom up) should have a feeling of ownership in the success of the company and pride in their impact. It works! – Matthew Goldston, PKF Texas

5. Ensure Overlaps In Employee Skills

I always try to ensure there is overlap in employee skills when possible. Not only does this allow an organization to better prepare for the unexpected, but it also ensures employees can comfortably take time off without feeling like a burden to their team and return to work energized and ready to go. – Julie Fergerson, MRC / Merchant Risk Council

6. Automate Repetitive Tasks

Expect the unexpected” can be translated into “have a plan, and have a backup plan for your plan.” Employee turnover is a critical obstacle for business owners to overcome. Business owners invest a lot of resources into new employees to get them acclimated to their roles. Business owners should lean on technology to automate daily tasks and also have redundancy when it comes to employee responsibilities. – Corey Patterson, Corey G. Patterson, CPA

7. Leverage Cash Flow Forecasting Software

Identifying best- and worst-case scenarios is the perfect place for cash flow forecasting software. There are many paid and free tools out there that connect directly with accounting data and allow business owners to see what finances would look like if expenses suddenly rose, key clients left or sales dropped. These tools are great because they work quickly, and data can be exported. – Nick Chandi, ForwardAI

8. Offer Holistic Employee Wellness Programs

Wellness programs should encompass not only the traditional physical and mental health of your employee base but also their financial wellness through programs such as educational assistance, counseling and so on. A strong offering in support of these broader employee needs should both improve employee satisfaction, which will reduce turnover, and help you maintain lower insurance premiums—thereby paying for itself many times over. – David Kelley, Mailprotector

9. Focus On Your Profit Margin

Companies need to understand profitability. Business owners look at their profit—gross minus expenses—without considering their profit margin. Profit margin—net divided by revenue—tells you how much you keep of every dollar you earn. The higher the profit margin, the better the business’ position to weather financial losses. Companies need to focus on profit margin over pure profit. – Jared Weitz, United Capital Source Inc.

10. Have A Secure Line Of Credit

Make sure you have a secure line of credit for when times get bad. Double-check the fine print and understand when the line can be lessened or withdrawn. Some lines expire after a certain period of time, and others can go away if you miss certain financial metrics. This usually means they go away when you need them the most. Talk with your lender before you make any assumptions. – Aaron Spool, Eventus Advisory Group, LLC

11. Build An Internal Accounting Department

Hire a CFO or financial analyst. Even small-business owners need a team watching and planning for the unexpected. Building an internal accounting department is something that should occur much earlier than many entrepreneurs realize, as it can prevent catastrophic mistakes. They should be trained in risk management so you can focus on other key areas of operating the business. – Evan Kirkpatrick, Wendell Charles

12. Add To Your Existing Services

Diversify your revenue streams. A “Plan B,” “Plan C” or “Plan D”—even if not comparable in total yield to your “Plan A”—has inherent value as a cushion to fall back on when contingencies strike your main business. – Amanda Dixon, Barney

13. Keep 10% Of Your Revenue In The Bank

One of the biggest mistakes a business owner can make is not keeping enough cash in the bank. It’s easy to run out of cash, no matter how profitable you are. We advise business owners to keep 10% of their annualized revenue in the bank at all times. That means, if you’re a $3 million company, you want to have $300,000 in the bank. A cash reserve gives you peace of mind when the unexpected occurs. – Jody Grunden, Summit CPA Group

14. Treat Employees As Your Best Asset, And Work Closely With Vendors

Be in the know. Connect and communicate with your teams, and actively address issues and concerns. Safeguard your business from turnover before it happens. Mentor, challenge, promote, pay fairly, appreciate, empower, value and trust your largest asset—your employees. Additionally, negotiate and communicate with key suppliers, and have a backup source for key products. Trust your data, learn from it and pivot quickly. – Cynthia Hemingway, Fourlane, Inc.