It looks like it's getting biblical, do you have a plan to survive?
In the last decade depending on your location, you've had to deal with droughts, fires, mice plagues, COVID, and now floods. Not to mention the talk of a potential global recession looming in the background. How do you ensure your clients' businesses are strong enough not just to survive the unexpected and major shocks but also thrive in the aftermath?
While it's common to plan for growth and a positive future, few businesses plan for the unexpected. When the unexpected happens, hasty decisions are made to survive, and sometimes they make things worse.
The solution includes two fundamental tactics in the overall business strategy:
- A business disaster recovery plan. Knowing what to do when the unexpected happens or a major economic shock occurs provides a road map to survive.
- Appropriate business structures. What role you play in your business and its structure will determine your exposure to the risk and events that occur.
So, what's involved?
While everything is running well, this is the right time to plan for the unexpected and major shocks of the future. Here's a high-level overview of what should be considered.
Business disaster recovery plan
- Adaptability. Is the business rigid in how it operates or adaptable to change? Can the staff perform alternative duties or work in alternative locations?
- Reviewing cash-flow needs. What are the business's minimum cash-flow needs? For example: loan repayments, rents, utilities, insurances, wages and other recurring payments. How long can the business survive a temporary stop in income.
- Cost-cutting plan. When and what cost should be cut. How can the business be scaled down temporarily or permanently while maintaining the highest level of profitability and cash flow?
- Plant and equipment. Are investments needed to create greater flexibility? Can a change in plant and equipment support business growth while also giving greater capacity if the need arises to reduce staff numbers when the unexpected happens?
- Debt management. Review what level of debt the business should hold and in what timeline it must be repaid.
- Reserves. What level of reserves should the business hold in either cash or debt facilities to ensure the business can trade in case of the unexpected.
- Who runs your business? If the business owners/leaders cannot work, who will take over the running of the business in the short term to ensure it survives?
- Insurance policies. What insurance cover is prudent and what's important to ensure the business continues.
Appropriate business structures
- Legal structure. Each legal structure has unique risks and benefits; ensuring the structure is appropriate for its owners and directors reduces the risks and maximises the benefits.
- Who should be the directors. Directors face personal exposure from performing those duties. Directors who are not actually involved in the decision-making process leave themselves liable for actions taken by others.
- Guarantees. Directors in privately-owned businesses are often required to provide personal guarantees to financial institutions and creditors. What assets a director owns must be balanced against the risks of those guarantees.
- Separation of business and personal assets. When assets are held in a single entity and the business goes down, non-business assets can go down with it.
- Dividend strategy. Investing in a business is for the purposes of making a return, (i.e. if your listed share investment didn't provide a return, you wouldn't be happy) yet many privately-owned businesses retain all profits in the business. This leaves the profits open to the future risks of the business.
Being prepared is the best defence when it comes to the unexpected and major shocks. By having a disaster recovery plan and the appropriate structure, your clients' business will be best placed to survive and thrive after the event.
We can assist you and your clients to develop a disaster plan and work with you on reviewing their structure. Please contact your local Worrells principal to discuss how we can assist.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.