Managing Your Small Business in a Crisis

Regardless of how well you plan, every business faces a crisis.

Whether it’s a widespread issue like COVID-19, declining sales, or negative customer feedback, you need to be able to navigate and thrive despite these challenges.

While you can’t anticipate every situation, you can prepare your business to successfully navigate a financial crisis. Here’s how:

1. Assess the Situation

Before you start planning, understand your situation.

Take an honest look at your business and identify the real issue(s). It may be an external factor beyond your control, internal factors affecting profitability, or a combination of both.

Review Financial Statements

Start by reviewing your most recent financial statements for an overview of your financial position. Look for red flags and compare against previous performance to identify trends or seasonality. Compare actual results to forecasts to gauge deviations.

Use this overview to determine where to dig deeper. Ask yourself:

• Did any products/services underperform or overperform?
• Did you overspend or underspend in any area?
• Were there unexpected expenses?
• Did you generate the expected cash inflow?

Consider External Factors

Understand the external factors impacting consumer spending and your business expenses.

For example, during the COVID-19 pandemic, physical storefronts were forced to close. Brick-and-mortar businesses saw sales decline and expenses decrease. Online businesses faced a drop in sales but maintained expenses.

Talk to your customers to gain first-hand feedback and ideas for immediate action.

Identify the factors affecting you and your customers, and consider:

• How long will this issue affect your customers?
• Will there be a future need for your product/service?
• Will the issue worsen or improve in the coming months?

By exploring these questions and understanding your financial position, you’ll be ready for step two: revisiting your financial forecasts.

2. Assemble the Right Team

Select people with expertise in relevant issues or those who can provide diverse perspectives for crisis management. Be transparent and ensure everyone has the full picture to enable valuable contributions.

Start with a larger group and refine based on feedback. Have your business plan and forecasts readily available.

Clearly define everyone’s roles and responsibilities to mitigate confusion and ensure a coordinated crisis response.

3. Develop a Crisis Management Plan

Create a crisis management plan based on your assessment, updated sales forecast, and the team’s input. Consider these potential options:

Review Expenses and Cash Flow

Identify opportunities to cut expenses and improve cash flow. Review and update your cash flow and expense forecasts. Ask questions like:

• Which expenses are necessary and can others be cut?
• Can you maintain payroll or do you need layoffs/pay cuts?
• Can you speed up customer payments?
• Can you delay vendor payments?
• Do you have enough cash to cover expenses in the short term?
• When will you run out of cash?

Revisit Sales and Business Model

Adjust your sales forecast to improve sales. Explore scenarios such as pricing changes and product/service adjustments. Consider adapting or pivoting your business model.

Consider Funding Options

Explore external funding options, considering their impact on cash position and ability to cover payments. Evaluate qualifications and timing. Understand how you will use and repay the funding.

Map Out Your Actions

Once you determine potential actions, create a plan with clear milestones, assigned responsibilities, and metrics to track.

Dig Deeper:

Learn how to create a contingency plan and why you need a risk management plan.

4. Adjust and Create New Forecasts

Update your forecasts based on recent sales and expense trends. Focus on sales forecast first.

Consider the impact on customers and their buying power in the coming months. Plan for various scenarios.

5. Regularly Review and Adapt Your Plan

Continuously review performance and adjust forecasts as necessary. Hold regular review meetings to stay on top of financials and keep your team informed.

6. Consider the Future

Look beyond the crisis to plan for recovery and growth. Update your forecasts to set goals for the next few months or years.

Regular planning, forecasting, reviewing, and revising are key to effective crisis management and overall business success.

Looking for more ways to manage and grow your business? Check out our resources on business strategy, goal setting, and selling your business.

Crisis Management Tools and Resources

Free one-page business plan template

Simplify and streamline your plan with our effective one-page format.

Download a detailed sales forecast spreadsheet with built-in formulas for faster updates.

Be prepared with LivePlan. Stay on top of your cash flow, explore multiple scenarios, and update your forecasts with real-time data.

Andrew Brooks

Hello!

I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.

My career is built on a foundation of helping individuals and businesses thrive financially in an ever-changing economic landscape. At phonenumber247.com, my aim is to demystify the complex world of finance, providing clear, actionable advice that can help you navigate your financial journey with confidence. Whether it’s personal finance management, investment strategies, or understanding the nuances of market dynamics, I’m here to share insights and tools that can propel you towards your financial goals.

Welcome to my digital space, where every piece of advice is a step closer to financial clarity and success!